What is the chapter 13 trustee payment grace period?

How Chapter 13 bankruptcy works

Also known as a wage earner’s plan, Chapter 13 bankruptcy is a repayment plan that allows you to repay all or a portion of your debts. Bankruptcy plans last three to five years, depending on your income. Monthly payments are no more than 15% of your disposable income, and your assets may be sold to help resolve your balance.

“Chapter 13 bankruptcy can be a lifesaver, but it comes with structure — and that structure includes regular payments,” explained Mark Hirsch of Templer & Hirsch in Aventura, Florida.

When you file Chapter 13 bankruptcy, you propose a repayment plan to the court. The court will tell you if it approves your plan at a hearing, and if accepted, you have 30 days to make your first payment to the trustee. It is the trustee’s responsibility to then submit payment to your creditors. You continue to make payments to your trustee until your repayment plan is satisfied.

In the meantime, debt collections are put on pause. This means debt collectors can’t bother you while you are making repayment, protecting you from potential lawsuits and wage garnishments.

» MORE: How long does it take to recover from bankruptcy?

Chapter 13 has no payment flexibility

So, what happens if you miss a trustee payment? Chapter 13 has no flexibility. Payments are due on time, every time. If you fail to make them in a timely manner, you could open yourself up to serious consequences.

“Chapter 13 payments start 30 days after you file bankruptcy, and your payment is due on the same day every month thereafter. Failure to make your plan payments is grounds for a dismissal,” said Ashley Morgan, a bankruptcy attorney in Herndon, Virginia.

Consequences of missing a Chapter 13 payment

Missing a Chapter 13 trustee payment doesn’t always lead to consequences right away. You should always do everything you can to avoid missing a Chapter 13 payment, but if you miss a single payment by just a few days, it may not trigger any penalties.

“Options for dealing with missed payments really depend on your case specifics and why you are in Chapter 13,” Morgan said. “Sometimes, it can make sense to dismiss your case, or sometimes you can convert to a Chapter 7.”

When you miss even a single payment, you’re in breach of your payment plan. The trustee may notify the court, which can trigger further action.

Chapter 7 conversion

The court may order your Chapter 13 bankruptcy to be converted into a Chapter 7 bankruptcy. This is a type of bankruptcy that allows for the liquidation of assets like your home or car to satisfy your debt. Chapter 7 lasts up to 10 years on your credit report, while Chapter 13 only lasts seven.

Case dismissal

If you miss one or more payments, the trustee could file a motion to dismiss for material default. This will dismiss your entire case if the judge agrees to grant the order.

Without the protection of Chapter 13 bankruptcy, you’ll be responsible for repaying your balance in full. Further penalties may be imposed on your account, and you’ll also now be vulnerable to debt collection efforts.

“Typically, the Chapter 13 trustee will file a motion to dismiss after you miss two or three payments,” Morgan told us. “If you can get caught up fairly quickly, the issue can be resolved. If you cannot get caught up, your attorney may be able to work out a catch-up schedule or submit a new plan on your behalf.”

Steps to take before missing a payment

It’s important not to wait until you miss a payment to take action. Instead, there are a few proactive steps you can take if you expect you will miss a Chapter 13 trustee payment.

Contact your trustee

Be sure to contact your trustee immediately. “If you miss a payment, contact your bankruptcy lawyer and the manager right away. Do not wait,” said Hirsch. “Courts value honesty and hard work – keeping quiet is frowned upon.”

If you have otherwise been on time with your payments, you may be able to get a one-time extension. You may also be permitted to work with your trustee to develop a repayment agreement that gets you back on track with your plan.

Talk to your lawyer

If you have a bankruptcy lawyer, be sure to contact them as well. Let them know you won’t be able to make your payment on time so they can advocate for a resolution on your behalf.

“If you are having issues with making your payments, you want to communicate with your attorney as soon as possible,” Morgan told us. “You may have other options.”

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Steps to take after missing a payment

If you do miss a Chapter 13 trustee payment, there are a few things you can do to improve the situation.

Make an extra payment

If your trustee allows you an extension, be sure to make a catch-up payment. This will help you get back on track with your repayment plan.

“If you get behind, try to get caught up as quickly as possible,” Morgan said. “If you cannot submit a full payment, then you should submit a partial payment whenever possible. Partial payments at least limit how far behind you are.”

Coming up with the money for an extra payment may mean taking on a side hustle or putting in extra hours at work, but the results are well worth it.

Adjust your repayment plan

Maybe you're dealing with a job loss or medical emergency. Whatever your reason, you may need to adjust your repayment plan if you can no longer afford your payments. Be open with your trustee about your financial situation so you can find a repayment plan that works with your new budget.

You may need to file an official request with the court. Be sure to provide supporting documentation that shows how your financial situation has changed.

Request an abatement

If you can’t make your payments at all, consider requesting an abatement from the court. This lets you pause payments temporarily so you can deal with financial setbacks like a job loss before resuming your original plan.

Apply for a Chapter 13 hardship discharge

You may be eligible for a Chapter 13 hardship discharge if your financial situation changes. Keep in mind that strict limits that apply.

To discharge a particular debt, you must have paid as much on the debt as you would have paid under a Chapter 7 bankruptcy.

Keep in mind that a hardship discharge doesn’t apply to certain types of debts, such as tax debt or child support.

Convert to Chapter 7

Chapter 7 bankruptcy can be a faster way to settle your debts than Chapter 13 bankruptcy. The funds from selling your assets go toward your debt, which can often be settled in just a few months. However, you risk losing assets during the repayment phase, like your car or your home.

Wait for a dismissal

If you can’t amend your repayment plan, you may have to wait for the court to dismiss your case.

Once your case is dismissed, you may be able to refile for Chapter 13 bankruptcy under new terms that work for your current financial situation. The repayment timeline will begin again, but it could mean a lower payment than the one you had. Since there’s no guarantee that you’ll qualify for a refiling, this choice does carry some risk.

How to manage your Chapter 13 trustee payments

Learning how to pay off debt can help you manage your Chapter 13 payments. Here are some steps you can take:

• Create a monthly budget and stick to it. Start by calculating your monthly income. Then subtract your essential expenses and Chapter 13 payment to see what’s left for discretionary spending.
• Automate your payments. An easy way to ensure your payments are on time is to set up autopay. This way, you won’t have to remember to make your payments by a certain date each month, and the money is automatically deducted before you have a chance to spend it.
• Lower your bills. Review your bank statements and look for ways to lower your costs. Whether it means canceling a subscription or ordering less takeout, there may be ways to cut costs so you can meet your repayment obligations.
• Increase your income. Consider getting a second job or a side hustle to make extra money. Whether you sell household items, freelance or tutor, there are many ways to increase your income.
• Enlist the professionals. You may benefit from the support of a credit counselor who can help you create a budget and manage your monthly expenses while teaching you invaluable money management strategies. You can find free or reduced-cost support through the National Foundation for Credit Counseling or the Financial Counseling Association of America.