If a bankruptcy petitioner in Chapter 13 fails to make payments according to the schedule mandated in his or her repayment plan, creditors can ask the court for relief from the automatic stay, allowing them to resume collection activities including foreclosure and repossession actions. If the court has not yet confirmed the bankruptcy repayment plan, it is unlikely to do so if a petitioner is unable to keep up with the plan prior to confirmation. A bankruptcy judge may dismiss a petitioner’s case for failing to comply with the terms of the repayment plan, terminating the case without discharging (forgiving) any debt, frustrating the benefit of filing for bankruptcy relief in the first place.
A petitioner who fails to make Chapter 13 payments usually does so because of a temporary financial emergency. Regardless of whether a lost job or a bout with illness is to blame, a court will allow a petitioner to explain the reason for default and to request time to cure the default. Most courts will offer a petitioner the opportunity to catch up to their payments before dismissing the bankruptcy petition.
If the reason the original bankruptcy plan was untenable is because the petitioner suffered a permanent change in circumstances, the bankruptcy court may be willing to modify the bankruptcy plan. A petitioner may also request a hardship discharge, which would discharge the unpaid portion of the debt even though the repayment plan has not been completed. A hardship discharge will not affect priority debts, such as child support arrears, that cannot be discharged. Depending on the situation, it may be prudent to ask the court to convert the bankruptcy petition to a Chapter 7. If a court refuses to allow any of these options, and dismisses the bankruptcy petition anyway, a petitioner may refile the claim as a Chapter 13 once his or her financial situation improves. The court may prohibit refiling of a claim for six months, however, if it finds a petitioner has disobeyed court orders, and may limit the automatic stay in the second case to 30 days if filed within a year of the previous petition.