When someone files for Chapter 13 bankruptcy there are some debts that he/she might propose to pay “outside the play” (aka direct pay), meaning that the debtor will continue making payments directly to the creditor instead of through the bankruptcy.
If the debtor does not stay current on the debts proposed to be paid outside the plan this can often create problems.
For example, if a debtor has an ongoing child support obligation, the debtor needs to stay current on that obligation throughout the Chapter 13 payment plan, otherwise, there could be dire consequences, including dismissal of the case or no discharge granted in the case.
Debts The Debtor Needs to Keep Current During Chapter 13
The debts that a debtor pays must keep current if he/she wants to get a discharge in Chapter 13, which can include:
- Mortgages (if there was an arrearage
- Child Support/Alimony
- Student Loans
- Homeowner’s Association Dues
- Post-Petition Income Taxes
- Post-Petition Personal Property Taxes
There could be other “direct pay” debts as well but the above are the usual suspects.
Obligations After Filing Chapter 13: What Can Happen in Missouri
When a Chapter 13 plan is finished in Missouri, the debtor must file a Motion for Discharge and fill out a form in which the debtor attests whether he/she is current on the mortgage, child support, student loans, etc. This document is filed upon penalty of perjury and thus must be accurately filled out.
If a debtor cannot prove that he/she is current on the debts listed in the form, then he/she will not receive a discharge. This is a harsh result, but the bankruptcy court in the Western District of Missouri has ruled on this and so everyone knows what they need to do… that is, stay current on making payments on those debts after the bankruptcy is filed.
What Can Happen in Kansas
While a Chapter 13 plan is ongoing, if the debtor falls behind on a mortgage, child support, or incurs tax debts, a creditor and or the trustee could bring a Motion for Relief from Stay or a Motion for Dismissal and those often get granted, and that is especially true for a tax debt which is incurred after the Chapter is filed.
The same rules generally apply whether in Missouri or Kansas, but the judges in Kansas have ruled differently on whether staying current on a mortgage or student loans is a prerequisite for obtaining a discharge. The debtor might not need to prove he/she is current on his/her mortgage or student loans to be eligible for a discharge in Chapter 13 in Kansas.
The best practice, however, is to assume that one must always stay current on all “direct pay” obligations once Chapter 13 is filed.
Obligations After Filing Chapter 13: What Can You Do?
If there is still sufficient time left in the plan, we might be able to “bring the payment inside the plan,” which is basically amending the plan so that the debt in question is now being paid through the plan to ensure it’s being paid on time.
For a mortgage, perhaps a loan modification would be in order.
For student loans, perhaps the loans can be put into deferment during the bankruptcy, or maybe the debtor can get on an Income-Based Repayment Plan and be considered “current” at the end of the plan.
For child support and alimony, perhaps the debtor can take out a 401k loan or get other funds (family/friends) with which to get current on the payments that came due after the case was filed.
There might also be an option for Chapter 13 to be converted to a Chapter 7 in which a discharge would be available.
There might be other options as well, so if you fall behind during Chapter 13 on your “direct pay” debts you should contact your bankruptcy attorney as soon as possible to find out what you might be able to do to rectify the situation. Don’t wait until it’s too late to fix the problem.