MenuDue Date and When in a Month to Pay the Chapter 13 Payment
Coming into chapter 13 bankruptcy, a common experience of individuals is payment due dates and the sometimes harsh consequences that follow from missed due dates. When money has been tight, the experience of a late payment fee and a default interest rate is frustrating and stressful.
Naturally, with that experience, there can be some anxiety when I discuss that the plan payment is due the first of each month (in the Eastern District of North Carolina -- Raleigh's Bankruptcy Court). The shadow of past interactions with credit accounts covers expectations regarding the process of paying the trustee. So, going into chapter 13 bankruptcy, there is an opportunity to gain insight in advance of how chapter 13 plan payments are administered.
When Exactly is it "Due"?
If I had to compare the payment to the Trustee to a single sort of debt payment of common consumer experience, it would be a home mortgage payment. Common to a plan payment and mortgage payment: (1) due on the first; (2) payable without adverse consequence for some period of time early in the month; (3) payable with modest consequence later in the month; and (4) gets out of control quickly when not paid within a month. I will explore a few of these points in more detail.
Typical mortgages have a period of time that the payment can be received without adverse consequence, perhaps 5 or even 15 days. This a formal contractual grace period. There's no formal grace period in the chapter 13 plan payment, but the practical realties of case administration generally make it difficult to assign consequential tardiness to a payment received in the first week of the month. As of this writing, I have never seen anything bad happen to a chapter 13 debtor who paid their payment consistently sometime in the first week of the month.
When you get into the second week of the month, milder consequences start accruing. The experience with mortgages is a late fee; thankfully, there's no direct analog in chapter 13 bankruptcy. There's no such thing as a trustee late fee. The impact of a payment in the middle of the month is case-specific. Some cases it won't matter, and other cases it might be highly consequential. Administratively, in the Raleigh Division, paying after the first week of the month will result in a "hold" being placed on the funds. This simply reflects the fact the trustee sends payments out in the third week of the month, and does not disburse funds until funds clearing time has past. This might be important, or might not be important. If the trustee is paying a mortgage through the plan, his inability to disburse the payment in a month due to funds being received late might result in the mortgage creditor assessing a late fee on the account. Similarly, if there is a creditor who has taken a hostile approach to the chapter 13 case, they might be cued in to review the case by the missed outgoing payment from the trustee.
There are many mortgages that are paid late every month, and ultimately turn out fine. Similarly, there are many chapter 13 plans where a payment made in the later part of the month, every month, and things turn out fine. The risk in such payment timing is not as much the timing itself, but the fact there is little margin for error. If a payment is typically made on the 25th of the month, a two-week delay due to an unexpected expense results in a plan payment that is 40 days late and two payments behind. A motion to dismiss is the likely response from the trustee. The question I ask my clients is: what are you going to do with your buffer?. The administrative realities of chapter 13 practice and the discretionary policies of the trustee create a bit of a buffer around the 1st of the month due date where none is created by rule. That flexibility can be used to pay later in the month, or it can be saved so that when something unexpected happens, one has more time to figure out how to re-group and keep the case viable.
Payment Policy Flexibility
Between pre-payment penalties, early payments applied to principal, and other quirks of loan contracts, consumers have learned that safest course is making a single payment of a certain amount each month. Chapter 13 has none of these traps. Paying biweekly or weekly as funds become available is acceptable; paying early reduces the amount to be paid later; and there are few quirks of interest. I talk with my clients both about the official monthly payment and about what sort of on-the-ground schedule they should consider using to tender payments ultimately totaling that payment.
It should be noted that substantial pre-payment of a chapter 13 bankruptcy (e.g. more than a payment ahead, more than paycheck ahead, etc) should be discussed in advance. There may be circumstances that need to be disclosed to the court or trustee.
