You thought you had solved the problem. You decided you needed to restart your financial life, and you filed Chapter 13 bankruptcy. Then, you got some alarming news: Your Chapter 13 case was dismissed.
Questions and anxiety flooded your mind. Can my creditors come after me again? Will my credit be ruined? Can I fix the problem and re-file? At A Bankruptcy Law Firm, LLC, we have worked with enough bankruptcy filers to know how stressful this situation is. The good news is that we also know how to help you fix it.
In this post, we walk you through what happens when a Chapter 13 case is dismissed and your options for getting back on the right financial path in an Illinois or Missouri Chapter 13 case. Read on to learn more, or contact our attorneys today.
What to Expect Immediately After a Chapter 13 Case Dismissal
Perhaps the most important thing that happens when you file for Chapter 13 bankruptcy is the automatic stay. The stay takes effect immediately and prevents your creditors from taking any further debt collection actions against you. When your Chapter 13 case is dismissed, the automatic stay goes away.
That means your creditors can start pursuing your debts again. Depending on the nature and amount of your debts, that might include any of the following:
- Collection lawsuits
- Debt collection letters
- Wage garnishment
- Asset repossession
Creditors will be allowed to pursue debts from you to the limits set by the law unless or until you file bankruptcy again or successfully appeal the dismissal.
Why Chapter 13 Cases Get Dismissed
One of the first thoughts on your mind after finding out that your Chapter 13 bankruptcy petition was dismissed was probably a simple, one-word question: “Why?” Cases can be dismissed for several reasons. Chances are that your dismissal was due to one of the following factors:
- You didn’t meet deadlines. Even after you’ve filed for Chapter 13 bankruptcy, you have to meet certain deadlines, such as taking a required debtor education course or sending relevant documents to your bankruptcy trustee. If you don’t meet these deadlines, your case can be dismissed.
- You didn’t make your payments. The Chapter 13 repayment plan you have committed to is strict. It’s not a suggestion or a wish list, so if you miss payments, you risk having your case dismissed.
- You didn’t work with the trustee. Every Chapter 13 bankruptcy case is assigned to a bankruptcy trustee. You are required to work with your trustee to help them as they oversee your case. They will request documents and records from you, and if you fail to work with them on these matters, your case might be dismissed.
- You didn’t file your tax return. After you file Chapter 13 bankruptcy, you have to consistently do your taxes and submit a copy of your tax return to your bankruptcy trustee until your debts are discharged at the end of your repayment plan.
- You didn’t come up with a workable repayment plan. It’s up to the filer to come up with a Chapter 13 repayment plan and submit it to the court. The judge can then approve or challenge the plan, and your creditors will have a chance to oppose it, too. If you don’t come up with a plan that’s deemed fair and reasonable, your case won’t move forward.
- You didn’t go to the meeting of creditors. The 341 meeting, also called the meeting of creditors, is required. No matter how stressful the idea of seeing your creditors face to face may be, you and your trustee must attend. If you don’t, that’s grounds for dismissal of your case.
- You didn’t pay your filing fee. You have to pay a small fee to file Chapter 13 bankruptcy. Failure to pay the filing fee can result in a dismissal.
- You made a mistake or omission in your petition. If your Chapter 13 petition contains errors, inaccuracies, or intentional omissions, you may find that your case has been dismissed. Leaving out certain assets and similar actions can be construed as bankruptcy fraud.
Dismissal with Prejudice and without Prejudice
When the court dismisses your Chapter 13 case, it will do so “with prejudice” or “without prejudice.” These two words can make a huge difference in your options after the dismissal.
A dismissal without prejudice means you are likely able to refile again immediately. Common reasons for dismissal without prejudice include failing to meet deadlines, file the correct forms, submit records to your trustee, or make payments on time.
If your case is dismissed with prejudice, that usually means the court suspects you of bad intentions or wrongful actions. For example, if you omit assets in an effort to protect them during the bankruptcy, your case may be dismissed with prejudice. Any action that amounts to potential bankruptcy fraud is likely to trigger a dismissal with prejudice. Such a distinction in your case will more than likely mean you cannot refile in the immediate future.
Getting a Refund After Dismissal
As you make payments under your repayment plan, the money goes to your bankruptcy trustee, who then distributes it to your creditors. If your case is dismissed, you are entitled to a refund of any money that is still in the trustee’s possession.
However, the trustee has to get approval from the court to send the money back to you, and they are allowed to take their administrative fees out of that money before refunding it. Also, keep in mind that the money you are refunded may be subject to debt collection actions like wage garnishment.
Chapter 13 Bankruptcy Dismissal: What Are Your Options?
No matter how permanent a Chapter 13 dismissal may sound, it’s often not permanent. You have several options. Below, we look at each of the options that might apply to your situation after a dismissal.
Refiling Your Chapter 13 Case
If your case was dismissed without prejudice and you haven’t filed too many times in recent years, you will likely be able to refile your Chapter 13 case almost immediately. Because the automatic stay is no longer in effect, time is of the essence. But you will want to ensure that your refiled case addresses whatever issue led to the dismissal in the first place.
Refiling Your Case Under Chapter 7
After a Chapter 13 dismissal, you may be able to file for Chapter 7 bankruptcy instead to avoid the issues that led to the initial dismissal. If, for example, your case was dismissed because you couldn’t make the required payments, filing under Chapter 7 can solve that problem because there is no repayment plan for Chapter 7 bankruptcy.
If you would like to pursue Chapter 7 bankruptcy instead of Chapter 13, keep in mind that you will have to pass the means test. Also, you may have to liquidate some of your assets to get a Chapter 7 discharge.
Shifting to Chapter 7 Bankruptcy
If your Chapter 13 case hasn’t yet been dismissed but you are worried that it will be, you may be able to change your case to a Chapter 7 bankruptcy to avoid dismissal. Many bankruptcy courts in Illinois and Missouri will allow you to do this as long as you meet the Chapter 7 requirements.
Keep in mind that you may need to file specific documentation with the court and pay a fee to make this change, but it might be an excellent way to avoid a dismissal if the situation is right.
Changing Your Repayment Plan
Sometimes, situations change. People lose jobs, get sick, or have emergencies. And all of these factors can change your ability to meet financial obligations like those imposed on you by your Chapter 13 repayment plan. In some cases, you may be able to ask the court for a change to your required monthly payments to accommodate your new situation.
Appealing a Chapter 13 Dismissal
In some cases, it is possible to appeal a Chapter 13 dismissal. While this is a somewhat uncommon strategy, it is possible, and an attorney can help you do it. Most of the time, your trustee and the court will be willing to work with you to resolve the issues that may lead to a dismissal. And even when they aren’t willing to work with you, you’re usually able to refile immediately if your case is dismissed without prejudice.
If you want to appeal the dismissal rather than refile, you will have to file a notice that you are appealing with the court within a couple of weeks of the dismissal. You will also have to submit a legal argument that outlines why the appeal should be overturned. This often involves going to court and arguing your case, and your reasoning will have to be strong. You will likely need to show that the court made a mistake or make a similarly compelling argument to successfully appeal your dismissal.
Opposing a Bankruptcy Trustee’s Motion to Dismiss
Bankruptcy courts across Missouri and Illinois will have slightly different procedures for opposing a trustee’s motion to dismiss your Chapter 13 plan, but you will have the chance to oppose it.
If your trustee wants to have your case dismissed because you missed payments, you will likely have to prove that you can make future payments in order to oppose the trustee’s motion. A qualified bankruptcy attorney can help you build a strong argument to keep your Chapter 13 plan moving along as scheduled.
Voluntary Chapter 13 Dismissal
Dismissal of a Chapter 13 case isn’t always a surprise — sometimes, the filer may have reason to voluntarily dismiss a Chapter 13 case. It might be hard to imagine, but if your circumstances change, you might actually benefit from dismissing your own Chapter 13 case.
Here’s an example: You are making your Chapter 13 payments as scheduled and keeping current on your mortgage, but you decide to move out of state and into your parents’ home. You no longer need your home, and the terms of your bankruptcy hold that surrendering your home to your creditors will settle up your debts. In such a case, requesting a dismissal of your case may actually make sense.
In other cases, you might know you are going to be unable to make your Chapter 13 payments as you have been. Perhaps you lost your job or experienced some similar change to your financial circumstances. You may be able to request a dismissal of your Chapter 13 case so you can take a different approach, such as Chapter 7 bankruptcy. Before you take any drastic action, it’s always a good idea to speak with your bankruptcy attorney to determine whether requesting a dismissal is right for you.
Chapter 13 Case Dismissed? Contact A Bankruptcy Law Firm, LLC
When your Chapter 13 case is dismissed, you may feel all the financial stress and anxiety come rushing back, and that’s understandable. But this is not a time to lose hope. This is a time to take action.
A Bankruptcy Law Firm, LLC, is here to help you not just take action, but take the right action. Our experienced and trusted Chapter 13 bankruptcy attorneys can help you understand your situation, walk you through your options, and get your financial situation going in the right direction again.
Whether your Chapter 13 case was dismissed or you’re considering a voluntary dismissal, we can help. To learn more, speak with us in a free bankruptcy consultation. Call (800) 7-BENSON or contact us online to schedule yours.