Chapter 13 bankruptcy dismissal is something many people consider but may not feel comfortable discussing with their attorney.
This article will explain what a Chapter 13 bankruptcy dismissal is, the benefits and downsides of voluntary dismissal, what happens after dismissal, how long it takes, and what creditors can do post-dismissal. Reasons for considering dismissal may include high plan payments or increasing income making payments unreasonable. It's important to understand the implications of voluntary dismissal.
What is a Chapter 13 Bankruptcy Dismissal?
In Chapter 13 bankruptcy, you can leave the plan anytime. This is called Voluntary Chapter 13 dismissal. To do this, you need to file forms and motion. Understand the benefits and drawbacks before making decision.
There's also Chapter 13 Hardship Discharge where you can end bankruptcy early due to injury or illness.
Reasons for dismissal include: not making payments, not filing tax returns, not meeting requirements and deadlines.If high payment is the reason for dismissal, consider switching to Chapter 7 before dismissing. Chapter 7 can be cheaper and discharge happens within 120 days. You may wish to check whether you can qualify for the Chapter 7 bankruptcy.
Can You Qualify for Chapter 7 Bankruptcy?
Eligibility for Chapter 7 bankruptcy is determined by a 6-month review that assesses factors such as annual gross household income, household size, state of residence, and monthly disposable income. The Ch. 7 means test has two parts, the first looking at annual income and the second at monthly disposable income.
You can take the free Chapter 7 calculator below to estimate whether you QUALIFY for Chapter 7 bankruptcy and the COST of Chapter 7 bankruptcy.
Can You Convert Into A Chapter 7 Bankruptcy?
Consider talking to your lawyer if you think you qualify for Chapter 7 bankruptcy. But keep in mind the potential consequences before converting from Chapter 13. You may not be able to keep your home in Chapter 7. Check if your state's bankruptcy laws can protect your home in Chapter 7.
Pros of Voluntary Dismissal of Chapter 13
While it may appear that there are only a few scenarios where the benefits of a voluntary Chapter 13 dismissal outweigh the drawbacks, it's still worth considering what those benefits are. For example, some individuals may experience an increase in income while in the midst of a Chapter 13 bankruptcy case, which can be good news but it's important to understand how that could impact their monthly Chapter 13 plan payment.
Let's say John has been in a Chapter 13 for a few months and now is expecting an increase in his income, where his monthly income will go up by $1,000/mo. One of the elements of a Chapter 13 bankruptcy is the debtor's monthly disposable income. If there is a boost in income of around $1,000/mo, that may be included in the monthly disposable income and paid directly to the creditors. At this point, since John just began his Chapter 13 case, it could be advantageous for him to consider dismissing the case and resolving the debt through debt negotiation. While this could be a cost-saving option for John, there are potential downsides to doing this, so it's essential for him to consult with his attorney before dismissing.
Cons of Voluntary Dismissal of Chapter 13
Considerations to keep in mind when choosing to end a Chapter 13 bankruptcy filing voluntarily include the possibility of losing protections in future bankruptcies, accrual of interest and penalties on outstanding debts, debts not being eliminated, credit score damage, and extended waiting period before being able to file for bankruptcy again.
What Happens If You Voluntarily Dismiss Your Chapter 13 Bankruptcy?
When you choose to end your Chapter 13 case, it's important to know the consequences. One of the main effects is the loss of protection from the Automatic Stay. This means that creditors and collection agencies can contact you again. Additionally, it's important to note that your previous debt may still be owed and may not be reduced if you made payments to your unsecured debt in your Chapter 13 plan. It's crucial to understand the Chapter 13 dismissal refund and your options before proceeding.
Options Post Voluntary Chapter 13 Dismissal
If you're considering dismissing your Chapter 13 bankruptcy, it's essential to know what your options are. Use Ascend's free debt relief calculator below to get a personalized overview of the cost, qualifications, and benefits and drawbacks of each option. Some of the options to look into after dismissing from Chapter 13 bankruptcy include:
- Debt Settlement: This process involves reaching an agreement with your creditors to pay less than the full amount owed. Typically, you can settle debt for around 50% of the total amount. You can negotiate with creditors on your own or work with a debt settlement company.
- Re-Filing for Bankruptcy: This option allows you to go through the bankruptcy process again, although there are certain restrictions and limitations.
- Paying Creditors Directly: This option involves paying off your debts in full, without the assistance of a debt settlement company or re-filing for bankruptcy.
Should You Work With A Debt Settlement Firm?
One question that comes up often is whether to utilize the services of a debt settlement firm or not. It's important to consider several factors before making a decision. These include:
- The number of creditors you owe money to
- The presence of any ongoing legal actions
- The total amount you owe
- The specific creditors you owe money to (some creditors may prefer to work directly with consumers)
If you have multiple creditors, a debt settlement firm may be a good option. These companies will negotiate with your creditors on your behalf for a fee. However, it's also possible to negotiate and settle debts on your own, which could save you money. Keep in mind though, that without the expertise of a debt settlement firm, you may not know the best way to negotiate and settle each account.
Should You Refile For Chapter 13 Bankruptcy?
When a person is dismissed from a Chapter 13 bankruptcy, they may not immediately file for bankruptcy again. However, certain situations may arise where the individual's income suddenly decreases, making them eligible to file for Chapter 7 bankruptcy instead. This type of bankruptcy allows for the discharge of unsecured debt and also provides a legal barrier, known as an automatic stay, against creditors. It may be worth considering as a possible solution.
How Long Does Chapter 13 Voluntary Dismissal Take?
The subject of how swiftly a Chapter 13 bankruptcy case can be terminated is a frequent inquiry. There are various methods to get dismissed from a Chapter 13 bankruptcy. For instance, one way is simply to discontinue making payments in a Chapter 13 case. If you stop making payments to your Chapter 13 plan, the trustee may file a motion to dismiss the case.
The procedure of being dismissed from a Chapter 13 bankruptcy case typically doesn't take much time. If possible, you may want to talk to your current representation about it. They may be able to give you an idea of the time frame for your case. However, if you choose to voluntarily dismiss a Chapter 13 case, you would stop making payments and then respond to the trustee. The trustee would file a motion after the failure to make payments. After that, the debtor should be able to get dismissed from the bankruptcy.
Creditors After Chapter 13 Dismissal
When a Chapter 13 bankruptcy case is dismissed, creditors regain the right to take legal action, such as wage garnishment or lawsuits, to collect the debt. If you are facing a pending lawsuit, it is still possible to negotiate a settlement with the creditor, but the amount of debt reduction may not be as significant. It is important to note that dismissal of a bankruptcy case can have significant consequences on your credit and ability to obtain credit in the future. It is important to consider all options and speak with a bankruptcy attorney before making any decisions about dismissing a Chapter 13 case.
Do Creditors Start Collecting Immediately?
Once you have informed your creditors and collectors of your Chapter 13 bankruptcy, it is likely they will try to collect payment right away. If you are being bombarded with calls, it may be wise to explore options for debt relief as they may take legal action.If your dismissal from Chapter 13 was due to a significant rise in income, you may have the means to begin repaying the debts or pay them off in full, which would prevent the creditor from collecting. However, keep in mind that there may be additional charges accumulated during the Chapter 13 bankruptcy process which could make it difficult to repay the debt.
How do Creditors know your Chapter 13 Bankruptcy Has Been Dismissed?
When you initiate a bankruptcy process, the court requests a list of all individuals and entities to whom you owe money. These creditors are then notified of your bankruptcy filing through a notification letter sent by the court clerk. If your Chapter 13 bankruptcy is not successfully completed, the court may also inform your creditors of the dismissal of the bankruptcy case.
Terminating a Chapter 13 bankruptcy proceeding can be a weighty choice, due to the inherent hazards. Nevertheless, with thoughtful deliberation, it may end up being the optimal path. If you have further queries after going through this piece, don't hesitate to contact us or consult with your legal counsel regarding ending your Chapter 13 bankruptcy case.