Chapter 13 Bankruptcy & the Federal Government Shutdown

During a federal government shutdown, Chapter 13 repayment plans continue to be made to the Standing Trustee. But court hearings and motions may stall, especially when it comes to the Confirmation Hearings.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Key Points: Chapter 13 Bankruptcy During a Government Shutdown

• Plan Payments Must Continue: Your monthly Chapter 13 plan payments to the Trustee are still due on time.
• Trustee is Independent: The Chapter 13 Standing Trustee is a private entity, funded by estate payments, and not a furloughed federal employee. Their office remains operational.
• No Free Pass: Debtors cannot skip payments simply because the government is shut down. Missing payments risks a motion to dismiss your case.
• Hearings Will Slow: Expect significant delays for non-essential matters, especially Confirmation Hearings and contested motions.
• USTP is Furloughed: The U.S. Trustee Program (part of the DOJ) is heavily affected, slowing down their ability to file objections and participate in litigation.
• Automatic Stay Protection: The Automatic Stay remains in full effect, immediately halting creditor actions and protecting the debtor’s assets, even while the court’s pace slows.

Chapter 13 Bankruptcy: Why Plan Payments Don’t Stop When the Government Shuts Down

For debtors in the middle of a Chapter 13 bankruptcy, the “wage earner’s plan” requires timely monthly payments, and once the plan is completed, the bankruptcy judge issues an Order of Discharge.

But when the federal government shuts down, how does that affect a Chapter 13 case? Unlike the general uncertainty that impacts much of the federal system, it’s possible that bankruptcy cases can withstand a funding lapse.

This post follows my previous work on Chapter 7 bankruptcy and the government shutdown.

The Standing Trustee is Not a Furloughed Government Employee

The most crucial distinction in a Chapter 13 case during a federal government shutdown is the status of the entity receiving your payment:

• Your Chapter 13 Trustee is known as the standing trustee and is not a federal government employee. The Trustee’s office is funded by a statutory percentage of the payments they collect and disburse to creditors. Typically, 10 percent.
• The Bottom Line: Because the Standing Trustee’s operations are self-funded by the estate, the Trustee’s office remains open for business. Therefore, your obligation to make your regular monthly plan payment DOES NOT STOP simply because the federal government is unfunded. Payments must continue to be submitted timely.

Judicial Delays Are Expected

While the Trustee is independent, the Court and the U.S. Trustee Program (USTP) which is a branch of the Department of Justice, are federal entities subject to appropriations from Congress. As funding reserves shrink, the court system slows down.

• The USTP Stoppage: During a government shutdown, most USTP employees are furloughed.
• Confirmation Hearings: This is where the impact is most noticeable. Confirmation hearings for new Chapter 13 plans require court hearings. However, the bankruptcy court judges are operating with minimal staff. As a result, non-essential hearings, including many plan confirmation hearings, are likely to be delayed until funding resumes. While this stalls the debtor’s ability to move forward with a confirmed plan, the plan payments must continue.
• Contested Matters: Any heavily litigated matter, such as a Motion for Relief from Stay filed by a secured creditor, may also face delays as judges and their support staff struggle with limited capacity.

Professor’s Note: Jurisdiction and the Immediate Power of the Automatic Stay

The moment a bankruptcy petition is filed, the automatic stay immediately takes effect under 11 U.S.C. §362. The automatic stay is a powerful federal injunction that stops virtually all collection efforts, including foreclosure, repossession, and all active or pending litigation to collect on a debt.

Does the Government Shutdown Stop Your Chapter 7 Bankruptcy?

The conflict is clear: the federal bankruptcy court effectively supersedes the authority of all state courts. This means any creditor lawsuit initiated in state court to collect a debt is immediately stayed and cannot proceed without express permission (relief from stay) from the federal bankruptcy judge.

So while the federal government shutdown affects the state court case, that case cannot move forward.

Next Steps to Take as the Debtor

If You Are a Federal Employee/Contractor: If your income is suddenly halted by the shutdown, you face a genuine hardship. Do not simply miss a payment. Immediately notify your attorney.

The most common course of action is to file a Motion to Modify the Plan and upon receiving back pay, spreading the missed payments over the remainder of the plan. Courts and Trustees are generally sympathetic to income disruption caused by politics as this is beyond the debtor’s control.

The Professor’s Conclusion

A federal government shutdown highlights how Chapter 13 repayment stays on track since the Standing Trustee is not a government employee. However, the bankruptcy court’s slowdown is inevitable.

For those in Chapter 13, the lesson is clear: keep your plan payments current if you can; if not, seek to modify the plan. Make sure to remain in contact with your attorney to handle the inevitable delays in the confirmation process and litigation.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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