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What happens when you are unable to make Chapter 13 payments?

On Behalf of | Sep 14, 2018 | Chapter 13 Bankruptcy |

Chapter 13 bankruptcy could be a powerful tool to restructure and limit the long-term impact of your debts. It could, in many cases, reduce financial risks, namely by limiting your creditors’ rights to repossess the property you have offered them as collateral. Even though most Tennessee Chapter 13 bankruptcies proceed without incident, some debtors encounter problems keeping up with payments.

There are a number of reasons you might find yourself struggling to make your Chapter 13 installment deadlines. Some would be due to factors outside of your control, while others you could easily avoid — this article looks briefly at one example of each. Regardless of the cause of your missed payment, the consequence would likely be that your creditors would attempt to dismiss your bankruptcy case.

One common temptation you might have trouble resisting in your repayment period is reestablishing credit card accounts. One year after a judge approves your Chapter 13 plan, you often become eligible for high-interest credit cards. If you avoid these risky luxuries in favor of prepaid cash cards with no overdraft potential, you could prevent yourself from starting to accrue this higher, possibly ruinous interest.

While you could easily avoid applying for credit cards, keeping control over your income might not be so simple. Your job, your business or your investments could change, leaving you with less disposable income to handle your payments. Furthermore, as mentioned on FindLaw’s list of debtor responsibilities, you would still likely be responsible for paying many of your secured debts normally.

Failing to keep current on your payments could lead to the dismissal of your case. This would invalidate your Chapter 13 repayment plan. However, you could defend yourself against this dismissal motion in some cases. Bankruptcy is complicated, especially when things do not go exactly as planned, so please do not think of this as specific legal advice. It is only general information.