15 Mistakes That Can Sink Your Chapter 13 Case
A Chapter 13 case is a three-to-five year commitment; it is a long time. Life does not stop while your plan runs. People change jobs, cars break down, kids need braces, and tax season comes around every single year.
Many Chapter 13 cases that fail do not fail because the plan was bad; they fail because something small went unaddressed until it became something big. Almost every one of the problems below is fixable if we hear about it early. These are the kinds of bumps in the road that happen during a three- to five-year case. These preventable issues are very different from starting a Chapter 13 with a payment that was never realistically affordable in the first place.
If you are still deciding whether Chapter 13 is right for you, start with our overview of the pros and cons of Chapter 13. If you are already in a plan, here are the mistakes we see most often, and what to do instead.
Chapter 13 has some flexibility
One misconception we hear all the time is that Chapter 13 assumes nothing will change over the next three-to-five years. Fortunately, that is not how the law works. People lose jobs. People get raises. Cars break down. Medical issues happen. Families grow. Chapter 13 includes tools to address many of those changes, but they only work if your attorney knows what is happening.
If your plan payment is primarily based on your income and ability to pay, there is often flexibility when your financial circumstances change. Depending on the situation, we may be able to modify your plan, reduce your payment, or give you time to catch up. If your payment is driven by protecting assets or the liquidation analysis, there may be fewer options to reduce the payment itself. Even then, all is not necessarily lost. We may still be able to adjust other terms of the plan or request additional time to help you successfully complete your case. The earlier we know about a problem, the more options we usually have.
The good news is that many Chapter 13 cases do not fail because of a single mistake. They usually fail because a small problem goes unaddressed until there are fewer options to fix it.
| If this happens… | Do this first |
|---|---|
| Miss a plan payment | Call your attorney immediately |
| Lose your job | Ask about a plan modification |
| Get a raise | Report the income change |
| Need another vehicle | Get court approval first |
| Receive an inheritance | Tell your attorney before spending it |
| Want to sell property | Ask before signing anything |
1. Falling behind on plan payments and saying nothing
Your plan payment is the engine of the case. When payments stop, the trustee overseeing your case will eventually move to dismiss it for cause under 11 U.S.C. § 1307(c). If the case is dismissed, your creditors are free to resume collection, and the protection you paid for is gone.
The mistake is not the missed payment. The mistake is the silence that follows it. There are options for a missed payment. We can often cure the delinquency over time, modify the plan going forward under 11 U.S.C. § 1329, or in some situations request a short suspension of payments. None of those options work if we find out after the case is already dismissed.
Call our office the same week you know a payment will be short. In our office, we rarely lose a Chapter 13 case because someone missed one payment. We lose cases because someone struggles for four or five months before finally telling us there was a problem. By then, our options are much more limited. Not every case can be saved, but the earlier we know about the issue, the better.
👉 Read More: The Chapter 13 process and what happens when a plan is denied
2. Not having your last four years of tax returns filed before the 341 meeting
This is a hard requirement, and it catches people off guard. Under 11 U.S.C. § 1308, you must file all tax returns for the four year period ending on the date you filed your case, and they must be filed before the day your meeting of creditors is first scheduled.
If they are not, the consequence is not discretionary. Under 11 U.S.C. § 1307(e), once a party in interest or the United States trustee requests it, and after notice and a hearing, the court is required to either dismiss your case or convert it to Chapter 7, whichever better serves your creditors and the estate. Neither outcome is what you filed for.
The Code technically allows a trustee to hold your meeting open for a reasonable period so you can file missing returns. Do not plan on it. In practice, our trustees typically will not hold a 341 open for unfiled tax returns. Treat the returns as something that must be done before your case is filed, not something you can catch up on afterward.
If you have unfiled years, tell us at your first appointment rather than hoping the issue does not come up. Old returns take time to prepare, and transcripts take time to obtain. Starting that work early is the difference between a smooth 341 meeting and a continued one.
If you have tax debt, make sure you understand when bankruptcy can discharge tax debt.
3. Assuming your tax refund is yours without checking your plan
Here in the Eastern District of Virginia, you generally do not turn over your tax refunds unless your plan requires it. That surprises people who have read national articles on Chapter 13. It is good news, but it is not universal.
Read your plan, or ask us. If your plan does require turnover and you spend the refund instead, you have taken money out of your own case and you will be asked to replace it. If your plan does not require it, the refund is yours to use.
One phone call before you spend it settles the question. Often before or immediately after filing, we can talk about adjusting your withholding so a large refund does not build up in the first place. If you get a large refund, and it is from Earned Income Credit and/or Child Tax Credit, you may not need to worry about it at all.
👉 Read More: What happens to your tax refund in bankruptcy
4. Taking on new debt without court approval
While your case is open, you need court permission before incurring new debt over $15,000. That is the current threshold in the Eastern District of Virginia. This is not the court being difficult. It is the court making sure a new car payment does not quietly destroy the plan you are already struggling to fund.
If your car dies or your roof fails, contact us before you sign anything. We file motions to incur debt regularly, and they are usually granted when the purchase makes sense for your budget. The process takes time, so start the conversation early rather than at the dealership with a salesperson waiting on you. Sometimes the dealership will tell you that you cannot buy while in bankruptcy or you just need a trustee letter. In this jurisdiction, we need court approval. If you are struggling to find dealers or lenders to work with you, let us know. We have resources for lenders that focus on people in bankruptcy.
5. Letting your car or homeowners insurance lapse
If you are keeping a financed vehicle or a house through your plan, you agreed to keep it insured. A lapse gives the lender grounds to seek relief from the automatic stay under 11 U.S.C. § 362(d), which is the first step toward repossession or foreclosure, even if your plan payments are current.
Insurance is one of the least expensive ways to protect the biggest asset in your case. Keep it current, and send proof when your lender or the trustee asks for it.
6. Missing secured payments you make outside the plan
Some obligations are paid through the trustee. Others, often your mortgage or a car loan, may be paid by you directly to the creditor. Being current with the trustee does not mean you are current with a direct creditor.
Here is what happens when a direct payment goes unpaid. The creditor files a motion for relief from the automatic stay. If the court grants it, that creditor is no longer bound by the protection your case provides, and it can move forward with foreclosure or repossession while the rest of your case continues. Your plan payments being perfect will not stop that.
Know which of your bills are inside the plan and which are outside it. If you are not sure, ask us. We would rather answer that question twice than see a motion for relief show up on a case that was otherwise on track.
7. Falling behind on child support or spousal support
Post-petition domestic support is one of the few areas in Chapter 13 with almost no flexibility, and it gates the case at both ends.
At the front end, the court cannot confirm your plan unless you have paid all domestic support obligations that first became payable after you filed. That requirement is in 11 U.S.C. § 1325(a)(8). In between, failure to stay current is its own ground for dismissal under 11 U.S.C. § 1307(c)(11). At the back end, 11 U.S.C. § 1328(a) requires you to certify that you are current before the court will grant your discharge.
That last gate is the one that hurts. You can make every plan payment for five years and still be blocked at the finish line because a support arrearage built up quietly along the way.
If a support order changes, or you cannot pay it, tell us immediately and address it with the court that entered the order. Do not wait for the end of your case to raise it. If your debt problems started with a separation, you need to discuss how support, property settlements, and joint debt are treated differently in bankruptcy. Sometimes when you have debt from divorce, you may need to be more strategic with your filing.
👉 Read More: Managing debt after divorce
8. Not telling us when your income drops
People often go quiet when money gets tight. It feels like there is nothing to say until the situation improves. That instinct causes more dismissals than anything else we see.
A drop in income is a reason to modify your plan, not a reason to give up on it. Depending on your circumstances, we may be able to lower the payment, extend the term, or in some cases convert to Chapter 7. Those tools exist. They only work while the case is still open.
9. Not telling us when your income goes up
This one surprises people. A raise, a bonus, a second job, or a spouse returning to work can affect what your plan is required to pay. Failing to disclose it can look like concealment, and it can put your discharge at risk.
Report the change. In many cases the plan does not change at all. When it does, a modification handled openly is far better than a problem discovered later.
👉 Read More: How a Chapter 13 plan payment is calculated
10. Missing your 341 meeting
The meeting of creditors is short, and it is usually far less intimidating than people expect. It is also not optional. Missing it delays your case and can lead to dismissal.
Put it on your calendar the day we give you the date. If a genuine emergency comes up, call us that morning, not the next day.
👉 Read More: What to expect during your meeting of creditors and 341 meeting problems and how to avoid them
11. Using payday loans, title loans, or new credit cards to get by
We understand why this happens. The plan payment is due, the paycheck is short, and a quick loan looks like a bridge. It is not a bridge. Payday and title loans carry costs that will make next month harder than this month, and they are new debt your plan cannot absorb.
If you are at the point of considering one, that is the signal to call us. A plan modification is cheaper than a 300 % loan.
12. Selling, transferring, or giving away property
Property you acquire during your case becomes property of the estate under 11 U.S.C. § 1306. Selling a vehicle, refinancing a house, or transferring property to a family member without court approval creates real problems, including the possibility of losing the discharge you are working toward.
Ask first. Approved sales happen all the time in Chapter 13 cases. Unapproved ones are a different conversation entirely.
13. Cashing out retirement or receiving money you did not disclose
Retirement withdrawals, personal injury settlements, inheritances, and lawsuit proceeds all need to be disclosed while your case is open. Some of it may be protected. Some of it may need to go to creditors. That analysis is our job, not yours.
The tax consequences of an early retirement withdrawal often surprise people as well. Talk to us before you touch that account.
14. Ignoring mail from the court, the trustee, or our office
Bankruptcy runs on deadlines. A notice you set aside for a week may have a response window measured in days. Objections to claims, motions to dismiss, and lender motions all move on schedules that do not wait for a convenient moment.
Open everything. If you are not sure whether a document matters, send it to us. We will tell you in a sentence.
15. Assuming you are finished when the payments stop
Completing your payments is not the same as receiving your discharge. Under 11 U.S.C. § 1328, the court will not discharge your debts until you have completed an approved financial management course, filed the required certifications, and shown that you are current on any domestic support obligation.
Every year, people finish four years of payments and then stall out on a two hour online course. Do not be that case. When we tell you the final steps, take them right away.
👉 Read More: Improving credit after bankruptcy and How bankruptcy can raise a credit score
The pattern behind all fifteen Chapter 13 mistakes
Look back at the list. Almost every item comes down to the same thing: Something changed, and nobody told the lawyer.
Chapter 13 is flexible by design. Plans can be modified. Payments can sometimes be suspended. Debt can be incurred with permission. Property can be sold with approval. What the process cannot do is fix a problem it never learned about. If something in your financial life shifts, assume it is worth a phone call. Our office is always available via phone or email to go over your situation and answer any questions.
Remember This One Rule
If something changes during your Chapter 13 case call your attorney before making assumptions. We understand that life happens and you will have questions about your income, your expenses, your job, your vehicle, your tax refund, or your property. We would much rather spend five minutes answering a question than spend months trying to fix a problem that could have been avoided.
Questions about your Chapter 13 case?
Our office represents consumers throughout Northern Virginia and the Eastern District of Virginia. If you are in a Chapter 13 case and something has changed, or you are considering filing and want to understand how Chapter 13 reorganization works before you commit, contact us to talk it through. You may also find answers in our bankruptcy FAQ and our post on common Chapter 13 myths.