A "doomsday provision" in Chapter 13 bankruptcy is a strict clause that warns debtors their case may be dismissed if they miss payments to the trustee or secured creditors again. Typically applied after a prior missed payment, it demands strict adher
A "doomsday provision" in Chapter 13 bankruptcy is a specific clause included in the repayment plan or court order to address issues with missed or late payments to the trustee or secured creditors, such as mortgage lenders. This provision essentially gives the debtor a last chance to comply with their payment obligations before their case is dismissed.
Here’s how a doomsday provision typically works:
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Trigger for Dismissal: The provision states that if the debtor misses a future payment (or multiple payments) to the trustee or a secured creditor, the case may be automatically dismissed without further court hearings. It’s essentially a warning that failure to meet payment terms will lead to the termination of the bankruptcy protection.
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Strict Compliance: Doomsday provisions usually require strict compliance from the debtor. This means payments must be made in full and on time to avoid triggering the provision. It acts as a form of discipline, urging debtors to adhere to the plan.
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Opportunity to Cure Defaults: Often, the doomsday provision is applied after a debtor has already missed a payment or faced a minor default. It provides a chance to get back on track, but with the understanding that no more leniency will be given.
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Automatic Lift of Stay: In some cases, a doomsday provision may allow creditors to automatically lift the bankruptcy stay (which normally prevents them from collecting debts) if the debtor violates the terms again. This gives secured creditors the ability to pursue collection actions, such as foreclosure, without additional court approval.
Doomsday provisions are common in Chapter 13 cases where debtors have a history of payment issues, and they serve to hold debtors accountable by setting firm consequences for non-compliance.