What Happens When a Chapter 13 Case Is Dismissed?

Getting approval to discharge your unsecured debt through bankruptcy court is a significant step. If you filed for Chapter 13 bankruptcy with the help of your bankruptcy attorney, this article will benefit you, as it explains what happens to a Chapter 13 case when it is dismissed. 

Chapter 13 bankruptcy is one of two main forms of bankruptcy. It is the more common one, as it sets you to repay your debt at a fraction of the actual value that you owe. A Chapter 13 bankruptcy petition will help reduce your total debt and allow you to repay a credit card company or other unsecured creditors. 

It’s possible to receive approval from the court for your bankruptcy Chapter 13, but in the middle of your proceedings, your Chapter 13 bankruptcy case gets dismissed. A dismissal of bankruptcy Chapter 13 case can happen for many reasons. Some of the most common ones include the following:

Other reasons for the Chapter 13 dismissed case can include a voluntary dismissal. 

In the process of the repayment plan, one might wonder — can you cancel a Chapter 13 bankruptcy? You can choose to voluntarily Chapter 13 motion to dismiss the case at any time throughout the proceedings. This can be useful in different situations, but it does mean you will owe the entirety of your debt to all of your creditors. In some situations, this might be a tactical decision through your attorney-client relationship. This decision might be made because you want to file a new case to stop foreclosure, so you have to voluntarily dismiss the current case.

Let's consider the example of the benefits of voluntary dismissal in Chapter 13. John initiated a Chapter 13 bankruptcy repayment plan when facing financial difficulties. Unfortunately, he lost his job in the middle of the bankruptcy process. While he hadn't received the discharge, he was finding it hard to keep up with the repayment plan and cover his basic necessities.

After consulting with his attorney, John decided to voluntarily dismiss his Chapter 13 bankruptcy case. He was able to stop his plan payments immediately, which provided him some relief from his financial obligations. Furthermore, John and his attorney discussed the possibility of converting to Chapter 7 bankruptcy once he secures new employment — a potential benefit of voluntary dismissal.

There are plenty of life-changing situations that can occur during the span of your repayment plan, such as getting laid off, falling ill, being injured, or getting demoted at work. Losing your income can produce serious complications, but it doesn’t mean that your case is over. In these situations, you and your attorney may decide to petition the court to allow you to pay back less of the debt than originally agreed upon. 

It’s also possible to petition for voluntary dismissal and refile for a different repayment plan. Addressing what happens after bankruptcy dismissal depends on the specifics of your situation. 

However, it is critical to consider what happens if Chapter 13 is dismissed. Once Chapter 13 bankruptcy was dismissed, the court viewed it as though it never existed. The automatic stay that was in place to prevent creditors from coming after your asset will be terminated means they can start sending you collection letters again, attempt to garnish your wages, repossess your assets, or foreclose on your property. 

Penalties and interest that would have otherwise been charged but weren’t due to the bankruptcy case might be retroactively applied to your debt. However, you can still make full and timely payments to handle your remaining debt and then refile your Chapter 13 petition later if necessary. 

When contemplating if Chapter 13 is dismissed and what happens, it's crucial to understand the implications for unsecured debt. If a Chapter 13 bankruptcy case is dismissed before completion of the repayment plan, it voids the bankruptcy protections. Consequently, creditors can recommence their collection efforts for any outstanding unsecured debts.

This means that creditors of unsecured debts, such as credit card companies or medical bill collectors, can now legally pursue full repayment, potentially through methods like wage garnishment or lawsuits. Therefore, a dismissal could lead to a financial situation that is potentially more challenging than before filing for bankruptcy.

Chapter 13 helps you with your personal liability by setting up a repayment plan from debts incurred prior to the start of your bankruptcy case. This allows you to catch up on other secured debt, such as a car payment or a satisfaction of mortgage. 

Once you successfully file for Chapter 13, a trustee is in charge of your case. Rather than giving them your assets to sell in order to repay your debt, you will need to make regular payments to your trustee over the span of that three to five year timeframe. The trustee then sends payments to your creditors.

The court will provide a discharge order after completing your payment plan and repaying your agreed-upon debts. This means if your plan is five years of repayments, the bankruptcy court enters a discharge order once the trustee has distributed those repayments for the total five years and filed a report with the courts. This order discharges any remaining balance for the debt included in your repayment plan. After that, the case is closed.

However, a significant aspect to be aware of during this process is the possibility of a trustee motion to dismiss Chapter 13 bankruptcy cases. Suppose the trustee responsible for overseeing your repayment plan notices consistent non-payment or certain other violations of the agreed plan. In that case, they may file a motion to dismiss your Chapter 13 case. 

If the court agrees and your case is dismissed before the completion of your repayment plan, you may lose the protections of bankruptcy, and creditors can restart collection actions.

You know when your Chapter 13 case is over when the court closes it. You may get the information from the trustee or get a letter in the mail.

For instance, Sarah filed for Chapter 13 bankruptcy after she faced significant credit card debt and a mortgage she couldn't afford. She diligently went through a 5-year repayment plan, making regular payments to her creditors under the guidance of her bankruptcy trustee. Towards the end of her payment plan, she continued to stay in touch with her trustee. 

After making the last payment, she got a notification from her trustee that she had fulfilled all obligations under her bankruptcy plan. Subsequently, Sarah received an official discharge notice from the court, releasing her of all eligible debt obligations. A final closure letter from the court arrived a short time later, indicating the end of her Chapter 13 bankruptcy case.

In some circumstances, someone involved in your bankruptcy case may be able to ask the court to revoke the discharge within one year of your debts being discharged, and your case is closed. This can only happen under specific situations. 

For example, suppose you obtained your bankruptcy discharge through fraud, and that fraud wasn’t discovered until after the dismissed bankruptcy Chapter 13 was granted. In that case, this can be grounds for revoking your discharge. This type of fraud typically involves t failing to disclose all of your income, hiding assets, or lying on your bankruptcy petition. 

Once your Chapter 13 bankruptcy case is over, you can shift your focus to managing other personal liabilities, such as newer debts. The next phase involves rebuilding your credit. The bankruptcy will appear on your credit report for seven years, but the impact will lessen over time. It might take a few years before you can get a new mortgage loan, but you can start to enhance your credit score through methods like obtaining a secured credit card or opening a credit union account.

These steps can aid in increasing your credit score. Regular on-time payments can assist with rebuilding your credit history.

Navigating a Chapter 13 bankruptcy can be influenced by plenty of variables. A minor failing, like not submitting a form or missing a meeting, can result in a dismissal. Life changes might also affect your repayment plan. If dismissal happens, you have the option to refile. After completion of your plan and notification from the trustee, the court will close your case, essentially wiping your remaining debt. This closure provides an opportunity to rebuild financially.

This is where the help of a competent advocate or reliable legal resource, like Lawrina, can be beneficial. They can guide you through the journey, ensuring you submit all necessary forms, meet essential deadlines, and understand the various aspects of your bankruptcy case. Legal help can assist you in understanding the finer details of Chapter 13 bankruptcy and its implications on your finances.