Bankruptcy / Chapter 13 Bankruptcy / Loans / Mortgages / Managing Your Finances

Failure To Make Chapter 13 Bankruptcy Payment Ends In Dismissal With Prejudice


In a recent appeal regarding a Chapter 13 bankruptcy case which was dismissed with prejudice, a debtor learned that failure to make timely payments can end in disaster. The debtor in this bankruptcy case was negotiating his bankruptcy repayment plan over the period of three years. During that time he was making “good faith” payments to the mortgage lender with whom he had a dispute.  Once the bankruptcy plan was finally confirmed, the debtor was still in disagreement over the validity of the bankruptcy claim submitted and approved by the bankruptcy court.  Because of this dispute the debtor refused to make payments to the bankruptcy trustee after his plan was confirmed.

Bankruptcy Trustee Dismisses the Case

Predictably, the bankruptcy trustee dismissed the case with prejudice and lifted the automatic stay allowing the mortgage lender to foreclose on the property.  The debtor appealed the decision and argued that the dismissal with prejudice was not justified because he should not have to make payments on a disputed claim.  However, the bankruptcy court disagreed saying that the debtor cannot simply decide to not make payments on a bankruptcy repayment plan.

If the debtor wants to be excepted from making payments to a creditor while a claim is being disputed, they need to make a formal request with the bankruptcy court. This was something the debtor failed to do. The bankruptcy court also stated that while the bankruptcy trustee is obligated to hear disputes, they must treat all creditor claims as if they are valid unless they are 1) properly disputed and 2) proven to be invalid.Because the debtor failed to go through the proper process to dispute the creditor claim and because he failed to make timely payments to the bankruptcy trustee, the case’s dismissal with prejudice was affirmed.

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