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What Happens if I don’t Make a Payment on My Repayment Plan?

repayment plans

In a Chapter 13 Bankruptcy filing, the filer agrees to a payment plan that is determined by the court, which essentially is a restructuring of the filer’s debt. The restructuring could reduce payments and extend out the payment period. It could prioritize some payments first and then others, or other options. In short, the court comes up with a new approach because it is concluded the filer cannot manage his or her debt on his own. All of this assumes, however, that once the repayment plan is made, the filer will stick to it and be consistent on the payments due.

Chapter 13 is not a clearing out of all the debt due, as any bankruptcy attorney Hopewell resource will advise; it simply reschedules it to make the monthly amounts easier to meet. As a result, if a filer doesn’t follow through, he still defaults on the debt.

If a filer does default, it can start a cascading of new problems. First, the creditors to whom debts are owned can ask the court to disregard any kind of homestead or essential protection and seize a home or car to settle debts outstanding. Alternatively, the court could easily just cancel the Chapter 13 filing, putting the filer back to square one with collectors chasing him for debts owed; creditors would no longer be barred from pursuing their money owed with the case dismissed. And, the court could also change the payment plan, making it harsher and more burdensome on the filer as well. Defaults are always an uphill battle, as every Richmond VA bankruptcy attorney knows.

The biggest impact for the filer in a default is the loss of protection from creditors. Each one involved is essentially put on hold when a bankruptcy is filed. They either end up seeing payment through a repayment plan, or their account gets wiped out entirely in a Chapter 7 bankruptcy. Obviously, creditors have no interest in seeing the latter option be the case. So, they will generally jump at any chance to waive the court’s protection if a default occurs so the creditor can pursue recovery faster. That can come in the form of liens, garnishments and turning on the daily barrage of calls and notices of debts due. Bankruptcy lawyers in Hopewell VA would advise against letting this kind of result happen if it can be avoided. 

A Chapter 13 repayment plan is not a magic wand that automatically solves debt problems. While it can lessen some pressure, the fundamental reasons for bankruptcy occurring may still be present, making it impossible or still extremely hard to make ends meet. The first and foremost step to take is to resolve the default status by catching up on the payments due. This at least shows effort on the part of the filer and could convince the court that the filer is trying to do the right thing. Courts tend to provide time extensions to fix momentary defaults if a person can obviously get back on track and the cause was explainable, like a car accident or medical emergency.

A filer can also ask the court to redesign the repayment plan to make it more feasible. This only works in situations where the debt involved is not secured, i.e., tied to collateral. These situations are very uncommon, but for those who are eligible, it’s an additional option.

If a case dismissal is inevitable, the filer can refile for a new Chapter 13. Bankruptcy attorneys in Hopewell VA can help folks in the area affected. However, it needs to be done quickly, or the creditors will take advantage of the gap and push their agenda. Bottom line, defaulting on a Chapter 13 filing is a very bad idea, but if it does have to occur, you will need solid legal expertise to help navigate to a recovery solution. Canfield Wells LLP can help those needing a bankruptcy attorney in Richmond VA. Trying to solve the above default problem without Richmond VA bankruptcy lawyer is adding trouble onto trouble. Canfield Wells LLP can help. Call us to find out more.

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