Chapter 13 Bankruptcy Dismissal
Once you end up filing for bankruptcy, there are only two ways out: a discharge or a dismissal. A chapter 13 bankruptcy involves getting into a repayment plan that takes your current income into consideration and restructures your debts to be paid over the course of three to five years, while allowing you to retain your property. You make regular payments to the court-appointed trustee who deals with your creditors, and if you follow through on the agreed plan, you get a discharge leaving you debt-free.
However, circumstances might arise that land you into a dismissal instead. A dismissal can be bad news as it removes the protection of the automatic stay, restores all rights of your creditors, and reactivates all unpaid loans, interest, and fees payments that were voided by the court. For example, if you used to pay $500 per month towards a loan before filing for bankruptcy, and that payment got reduced to $300 per month under your bankruptcy plan, a delinquency of $200 a month has been building. The creditor can now claim all that amount and add interest and late payment charges on it. This can leave you in a worse condition than before your filing, especially if you were a few years into your plan.
A bankruptcy dismissal may be voluntary or involuntary. A reason for a voluntary dismissal might be finding out after filing for bankruptcy that the court won’t allow a loan that you want discharged to be written off. Or it might be that you may have found a higher paying job, enabling you to pay off your debts without going through bankruptcy – this will help in salvaging the credit score. A voluntary dismissal can be had by consulting with your chapter 13 trustee and filing a formal request with the bankruptcy court.
An involuntary dismissal, on the other hand, lands on your chapter 13 case if you fail to fulfill the court’s requirements. There might be a problem with your paperwork – you might have overlooked filing some document or signing one. Or you might have fallen behind on your payments to the trustee. You are given a grace period to catch up the first time you miss a payment, but if you can’t, the trustee is authorized to file for dismissal.
If you receive a notice that says your bankruptcy is up for dismissal and you don’t want that to happen, you need to move quickly – you have very limited time before the dismissal is finalized. Start with finding out the exact reason for the dismissal. You will find the reason on the notice, but if it’s not there, go inquire about it at the court. Then make amends – submit the missing document or pony up the missed installments. Then file a Motion to Reconsider with the court and your bankruptcy may be reinstated. If your Motion to Reconsider is denied, you can appeal it, and will then have to present your case to U.S. District Court judge or Bankruptcy Appellate Panel .
If the dismissal is occurring because of some filing by your creditors, you will have to contest their claim in court.
In case your bankruptcy does get dismissed, you can file for another one after a period of 180 days. But remember that this filing for bankruptcy will be a new one and you will need to pay the fees, take the credit counseling, submit all the documents, and file a new repayment plan all over again.
