§ 44.4     Consequences of Failure to Commence Payments
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 44.4, at ¶ ____, LundinOnChapter13.com (last visited __________).

The failure to timely commence making payments under § 1326 is cause for conversion or dismissal.1 It has been held that a Chapter 13 debtor’s failure to comply with § 1326 is a ground for denial of confirmation of the plan.2 Failure to timely commence payments may be evidence that the debtor’s plan is not proposed in good faith3 or that the case is abusive of Chapter 134 or is not feasible.5 Failure to commence payments might constitute cause for relief from the stay, especially when creditors with depreciating collateral (an automobile, for example) are disadvantaged by the delay.6 After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),7 the failure to commence payments within 30 days of the petition may violate the new requirements in § 1326(a)(1)(B) and (C) that the debtor commence adequate protection payments to the holders of claims secured by personal property and commence payments on account of leases of personal property.8 It has been held that a Chapter 13 debtor’s failure to timely commence making payments under § 1326(a) can be a failure to abide by a court order for purposes of the 180-day bar to refiling in § 109(g)(1).9 After BAPCPA, the failure to timely commence payments could trigger the presumption that a subsequent filing within a year is not filed in good faith if the failure to commence payments results in dismissal of the case.10


Under pre-BAPCPA law, the U.S. Court of Appeals for the Seventh Circuit strictly construed the requirement that the debtor commence making payments within 30 days after filing a plan. In In re McDonald,11 the debtor was 10 days late making the first payment required by § 1326(a)(1). The trustee moved to dismiss. In a written response, the debtor’s attorney explained that “the first payment was about 10 days late because the debtor erred in projecting how her paydays fell in regard to the due date.”12 Counsel also stated that the debtor caught up the late payment and was now current.


At the hearing on the trustee’s motion to dismiss, the debtor’s lawyer did not again explain the late first payment, and the bankruptcy judge was unaware of the filed response. The Seventh Circuit held that the bankruptcy judge did not abuse discretion by dismissing the case, notwithstanding the apparent arbitrariness of this outcome:

McDonald believes that the judge dismissed the case according to a rule under which debtors’ circumstances are irrelevant. If the judge announces that he just doesn’t care about the reasons for delay . . .  then we would have a genuine refusal to exercise the discretion the statute bestows. If, on the other hand, the judge is hard-nosed about timeliness but will entertain claims of exceptional circumstances, then this would be within the judge’s power . . . . Judge Martin did say that his strong preference for dismissal when debtors pay late “is intentionally arbitrary so it will be taken seriously. If discretion is exercised on these cases, it’s my perception that a great deal of time will be spent trying to excuse failures to make timely payment. Whereas, if it [the rule requiring payment within 30 days] is [enforced?] with some rigor even to the point of arbitrariness, it [delay in payment] arises less frequently.” . . . When the Chapter 13 Trustee raised in open court his previously-filed motion to dismiss the case, McDonald’s lawyer did not offer any reason for her tardiness or ask the judge to convert the proceeding to one under Chapter 7 as an alternative to dismissal. That makes it impossible for McDonald to accuse the judge of having closed his ears and mind to compelling circumstances. . . . Perhaps counsel refrained because McDonald’s reason is so mundane. “Oversight” must come right after “the check is in the mail” as a line creditors hear from delinquent debtors. A bankruptcy judge who accepts this as an excuse might as well throw in the towel on the enforcement of deadlines, and the value of Chapter 13 plans would be diminished. The bankruptcy judge did not abuse his discretion in dismissing McDonald’s case.13

11 U.S.C. § 1302(b)(5) imposes on the Chapter 13 trustee the responsibility to ensure that the debtor commences making timely payments under § 1326.14 After BAPCPA, this duty puts the Chapter 13 trustee in the awkward position of policing not just the commencement of payments under the proposed plan but also the timely commencement of payments to lessors of personal property and of adequate protection to secured claim holders under § 1326(a)(1)(B) and (C).15 In most jurisdictions, this responsibility translates into a trustee’s motion to dismiss or convert when payments do not begin as required.16 If the debtor survives such a motion, at the very least, the debtor will usually be required to make up the missed payment(s) as a condition to continuing in the case.


One reported decision raises the interesting question whether a Chapter 13 debtor can fix a failure to commence making payments required by a plan by modifying the plan before confirmation. In In re Walters,17 the plan filed on February 23, 1998, called for weekly payments of $135. On May 22, 1998, the debtor amended the plan before confirmation to lower the weekly payments to $52. In the interim, the debtor accumulated a $790 delinquency. The bankruptcy court held, although § 1323 permits a debtor to modify the plan before confirmation,18 the obligation in § 1326(a)(1) to commence making payments is not affected by a preconfirmation modification of the amount the debtor is required to pay. The court explained:

[Section] 1323(b) does not change the meaning of § 1326 upon the filing of a modified plan. . . . [A]n amended plan replaces the prior plan. . . . [T]his means that the amended plan terms simply become the new terms. The replacement does not alter obligations which have already accrued. . . . [F]iling of an amended plan does not alter the payments that have accrued prior to the filing of the amended plan. . . . Allowing a debtor to cure pre-amendment plan payment defaults by simply filing an amended plan which reduces the plan payments would open a Pandora’s Box.19

Although § 1307(c)(4) provides discretion that a bankruptcy court “may” convert or dismiss a Chapter 13 case based on a debtor’s failure to commence making timely payments under § 1326(a)(1), McDonald and Walters demonstrate that bankruptcy courts are not inclined to easily forgive transgressions so soon after the filing of a Chapter 13 case. These cases put a premium on careful calculation of payments in the proposed plan and demonstrate the importance of careful explanation to debtors that they must start payments to the trustee on time and in the right amount. The consequences of failing to comply with § 1326(a)(1) are severe. It will almost always be better to ask permission for relief from § 1326(a)(1) than it will be to apologize for default.


1  11 U.S.C. § 1307(c)(4). See, e.g., Simmons v. Cosby (In re Simmons), 256 B.R. 578 (D. Md. 2001) (Pro se debtor’s failure to commence making payments as required by § 1326(a)(1) is a ground for dismissal under § 1307(c)(4).); Simmons v. Townson, No. 1:06-CV-1675-JEC, 2007 WL 656591 (N.D. Ga. Feb. 27, 2007) (unpublished) (Failure to make proposed plan payments is cause for reconversion to Chapter 7.); In re Waugh, 367 B.R. 361, 368 (Bankr. E.D.N.Y. 2007) (Section 1326(a)(1) puts responsibility for plan payments on debtor, “and not with any party that may be holding funds belonging to the Debtor.” Payments to mortgage creditor that should have been turned over to trustee provide no relief from dismissal for failure to commence payments.); In re Beckham, No. 01-31745, 2002 WL 32139303 (Bankr. W.D.N.C. Jan. 23, 2002) (unpublished) (Failure to commence making payments within 30 days of filing is cause for dismissal under § 1307(c).).


2  In re Kelley, 58 B.R. 927 (Bankr. D. Del. 1986).


3  See §§ 177.1 [ In General ] § 103.1  In General and 193.1 [ Economic Components of Good Faith—In General ] § 108.1  Economic Components of Good Faith—In General.


4  In re Cadet, 56 B.R. 301 (Bankr. E.D.N.Y. 1985).


5  See § 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1  Able to Make Payments and Comply with Plan.


6  See §§ 81.1 [ Lack of Adequate Protection ] § 64.1  Lack of Adequate Protection and 81.2 [ Other Cause for Relief ] § 64.2  Other Cause for Relief.


7  Pub. L. No. 109-8, 119 Stat. 23 (2005).


8  See §§ 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA, 404.1 [ Adequate Protection before Confirmation ] § 47.2  Preconfirmation Adequate Protection after BAPCPA, 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA and 427.1 [ Preconfirmation Rights of Landlords and Lessors ] § 57.4  Preconfirmation Rights of Landlords and Lessors after BAPCPA.


9  In re Nix, 217 B.R. 237 (Bankr. W.D. Tenn. 1998) (Failure to timely commence making payments under § 1326(a) is a failure to abide by a court order for purposes of the 180-day bar to refiling in § 109(g)(1); however, absence of evidence that failures to commence making payments in prior Chapter 13 cases were “willful” precludes creditor’s motions to dismiss third filing under § 109(g)(1).). See § 22.1 [ 11 U.S.C. § 109(g)(1)—Willful Failure to Abide by Court Order or to Appear in Proper Prosecution ] § 25.2  11 U.S.C. § 109(g)(1)—Willful Failure to Abide by Court Order or to Appear in Proper Prosecution.


10  See 11 U.S.C. § 362(c)(3) & (4), discussed in § 59.1  In General§ 60.4  (Rebuttable) Presumption of Lack of Good Faith and § 61.3  (Rebuttable) Presumption of Lack of Good Faith.


11  118 F.3d 568 (7th Cir. 1997).


12  118 F.3d at 570.


13  118 F.3d at 569–70.


14  See § 58.8 [ Ensure Debtor Commences Making Timely Payments ] § 53.9  Ensure Debtor Commences Making Timely Payments.


15  See §§ 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA, 419.1 [ Payments to Creditors before Confirmation ] § 53.11  Payments to Creditors before Confirmation, 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA and 427.1 [ Preconfirmation Rights of Landlords and Lessors ] § 57.4  Preconfirmation Rights of Landlords and Lessors after BAPCPA.


16  See § 333.1 [ Cause for Dismissal—In General ] § 152.2  Cause for Dismissal—In General.


17  223 B.R. 710 (Bankr. W.D. Mo. 1998).


18  See § 114.1  Timing, Procedure and Form§ 114.2  To Correct Errors in Original Plan§ 114.3  To Reflect Changed Circumstances§ 114.4  To Deal with Objections to Original Plan§ 114.5  To Provide for Postpetition Creditors§ 114.6  Effect of Preconfirmation Modification on Prior Acceptance or Rejection of the Plan and § 114.7  Opposing a Preconfirmation Modification of the Plan.


19  223 B.R. at 712–13. Accord In re Vincente, 257 B.R. 168, 177–78 (Bankr. E.D. Pa. 2001) (Plan provision that the debtor pay $547 per month directly to mortgage holder “commencing with the confirmation of this plan” does not satisfy the 30-day requirement in § 1326(a); amended plan filed 14 months later that required the debtor to immediately pay 14 monthly payments to the trustee could not cure the § 1326(a) defect. Original plan filed in October 1999 required the debtor to pay $5 per month to the trustee and $547 per month directly to a mortgage holder commencing with confirmation. “The Amended Plan provides for monthly payments reduced from $5 to the Trustee and $547 to Advanta ‘outside the plan’ to $450 to the Trustee for payment of Advanta under the plan commencing on November 13, 2000, not within 30 days of the commencement of the case. The fact that the initial payment is, by Debtor’s calculation, the equivalent of 14 months of payments at the new amount, does not cure the defect in the Plan which provided no payment until confirmation.” Citing In re Walters, 223 B.R. 710 (Bankr. W.D. Mo. 1998), “[d]ebtor’s belated attempt to cure the § 1326(a) violation is too little, too late. Accepting Debtor’s resolution, without any recognition of his duty to commence payments within 30 days of the filing of the petition unless the court orders otherwise, renders the § 1326(a) requirement meaningless.”).