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Filing for bankruptcy, meeting with the court appointed officials, meeting with whomever else is involved (creditors), filling out of whatever paperwork is required, speaking to the court and its officials, and paying whatever fees are required before making and confirming the plan, is all built on an expectation of trust and honesty. When a debtor files for Chapter 13, that filing is called a petition. The debtor is requesting permission to apply Chapter13rules to a restructuring plan in order to pay off and relieve a burden of debt. At the time of the petition filing, or within a maximum of 14 calendar days, the debtor must also file a payment restructuring plan. The debtor has the opportunity for setting down what he or she can reasonably pay each month (or twice a month) to the trustee for creditor distribution. There is one expectation in Chapter 13 law for the plan. The plan must meet the expectations of likely creditor payment under Chapter 7. The idea is that, given a priority of creditors, and given a particular scope around available cash, saleable assets, and likely distribution of money from the liquidations, the plan must estimate what each creditor was likely to get, and to now meet that minimum under the Chapter 13 payoff. There is likely some manner of discussion, negotiation, gnashing of teeth prior to coming with the final plan for the court to approve and for the debtor to begin paying. Now, it is all on the debtor. At the time the petition is filed, all creditor attempts to collect debt must stop, called the “automatic stay”, until the bankruptcy is dismissed.
By law, the debtor has a maximum of 30 days to begin the payments. Even if the plan is as yet unconfirmed by the court, the debtor must begin. If any adjustments to the plan occur later, the payments must be adjusted. Now, we come to the scenario: what happens if a payment is missed?
The court can dismiss the petition. The debtor loses the automatic stay. The creditors can begin collection procedures. The creditors can foreclose on loans. The creditors can request account seizures.
By law, the debtor can petition the courts to maintain the bankruptcy, or re-file (at debtor cost). But, as always, communication, communication, communication is the greatest tool a debtor has with his or her lawyer and the trustee. As soon as the debtor knows that a payment to the trustee is going to be missed or fall short in amount, the debtor must contact both the lawyer and the trustee. The debtor will do well to have a plan to catch up very quickly. Does the trustee have to accommodate the debtor? Not in the least. Might the trustee somehow accommodate the debtor? Yes. Debtors must realize that the trustee is obligated to the courts for exemplary execution of assigned tasks. The trustee is NOT on the debtor’s side. Again, here is where the trust meets reality. The debtor submitted and agreed to the plan. Failure is really not an option.