Making Payments Outside of a Chapter 13 Plan
When you file for Chapter 13 bankruptcy, you will agree to make payments towards your debts to the trustee. You won’t have to pay off 100% of your debts, but whatever you agree to will be divided over the course of 3-5 years. At the end of that time period, all of your (otherwise legally dischargeable) debts—whether they are completely paid off—will be discharged.
Payments Outside The Plan
Of course, this only happens if you actually pay the payments under the Chapter 13 plan to the trustee. If not, you are not in compliance with the plan, and thus your discharge can be denied.
But not all of your debts are paid through the Chapter 13 plan. In some cases, your regular bills may be paid outside the plan—that is, not paid to and distributed by the Chapter 13 trustee, but paid by you directly to the creditor the same way you normally would do had you not ever filed for bankruptcy.
Examples of bills or expenses paid outside of a Chapter 13 plan include things like utility, cable, child support, taxes, or rent.
This is often the case with cure and maintain plans, where the debtor, trying to get current on a secured debt such as a mortgage or a car loan, will pay off the amount in default through the plan, but continue paying the normal mortgage payments directly to the lender as usual.
Don’t Default on Payments Outside the Plan
The Supreme Court ruled on this issue. The Supreme Court has previously ruled that if a debtor fails to make a payment that is “provided for” under the Chapter 13 plan, the debtor could be denied a discharge. That means that even if the payment is not included in the plan as part of the regular payments to the trustee, the payment out of the plan (made directly to the creditor) is still “provided for” under the plan if the plan references that debt.
Courts have ruled similarly with mortgage cure and maintain plans.
That means that if you default (for example, miss a payment) on any debt that is not included in the plan, you could still be denied your discharge. With mortgages, it means that if you miss a mortgage payment, you could be denied your discharge, and the lender could eventually foreclose or continue foreclosure proceedings.
If the failure to make a payment is a one time thing, or you are only a few days late in a payment to a creditor being paid outside the plan, you may not have a problem, and the lender may agree to work with you before reporting to the trustee. The key is to tell your bankruptcy lawyer as soon as you can, if you fall behind in payments being made outside the plan.