Why first and last payments in chapter 13 bankruptcy are the most important payments to make timely.
In a Chapter 13 bankruptcy, you will make monthly payments to the bankruptcy trustee. The bankruptcy trustee is an official appointed by the United States Trustee Program, a component of the Department of Justice, to administer bankruptcy cases in their region. Part of the trustee’s job is to collect your monthly payment and disburse the funds to your creditors throughout your bankruptcy case. You must make all your payments under your plan to receive a discharge of any remaining qualified debt. Failure to make all payments or to make all payments may result in court denying you a discharge or dismissing your case.
When is the first payment due to the trustee?
The first Chapter 13 bankruptcy payment is due within 30 days of filing your Chapter 13 plan. The trustee’s office will send you a letter within a few days of your filing that tells you where to send payments and when payments are due. Your attorney will also cover this during the preparation of your case and send you notices of the due date. In most cases you can have your payment deducted from your check at work (also called employer pay and preferred by the trustee), make payments through a company called TFS, or send a money order or personal check directly to the trustee’s office.
What you need to make payments on time
Getting your payments started is crucial to the success of your case. The due date of the first payment is set by statute. Having a full payment to the trustee by the time of your 341 meeting is the best way to ensure you’re on track with payments. Making ongoing timely payments prevents dismissal of your case, prevents asset loss, and prevents additional attorney’s fees. You are able to monitor your case online through the National Data Center to see who the trustee pays and when payments are sent to your creditors.
Prevents dismissal/conversion of your case
If you do not make the first bankruptcy plan payment within 30 days, the trustee often files a motion asking the court to dismiss your case, or you will have two payments to be made in a short period of time. Remember, if your case gets dismissed, your creditors can resume collection activities such as repossession of assets, foreclosure, or garnishments. The trustee may also request your case be converted into a Chapter 7 bankruptcy case, where it’s possible you could lose assets you were trying to protect in your Chapter 13 case.
Prevents asset loss
The trustee disburses your monthly payment to specific creditors listed in your Chapter 13 plan. Often, payments are used to pay for a car, house, or another asset you are trying to keep. If you do not make your monthly payment, and your creditor does not get paid, your creditor can ask the court to allow them to take the property back during bankruptcy (e.g., through repossession or foreclosure) and you could lose the asset, even if you are able to avoid your case being dismissed.
Prevents additional attorney’s fees
If you get behind on payments, your attorney will likely charge additional fees to “reset” the missed payments and cure the failure to make timely payments. You want to avoid additional court appearance for your attorney if at all possible since that time could be billed to your case.
Why making the last payment on time is important
After receiving all required plan payments, the trustee will issue a notice of plan completion. The trustee will then issue a final report and the bankruptcy judge will enter an order of discharge in the case and qualified debts will be discharged. A recent court decision, In re Kinney, No.20-1122, 2021 WL 3123644 (10th Cir. July 23, 2021), now requires that all payments must be made within 60 months and there is no leniency to this time period.1 While most cases do not run that long, some will run as long as 60 months. Making a payment even a month after
the 60 month period could cause the trustee to request your case be dismissed or request that your discharge be denied.
A chapter 13 bankruptcy is complex and it helps to understand that much of what goes on is mandatory. The first payment is required to be made within 30 days and the last payment before 60 months has run (although many cases run no more than 36 months). Please contact us if you have questions about how a bankruptcy could help you. One of our bankruptcy attorneys will be happy to go over things with you.