If a debtor fails to complete their Chapter 13 case or fails to adhere to their repayment plan, their case gets dismissed. There are numerous reasons why a Chapter 13 bankruptcy case can be dismissed, like failing to pay court filing fees or failure to attend meetings.
Failing to enroll or complete the mandatory financial management course, not submitting the necessary bankruptcy forms on time, and not following through with payments under the new repayment plan can also lead to dismissal. When the court dismisses a case, it is considered unsuccessful, and thus, your debts will not be discharged. Here is everything you should know about chapter 13 dismissal refund and your available options;
Understanding How Chapter 13 Dismissal Refund Works
After filing for bankruptcy, the courts will assign a Chapter 13 trustee to you. When making payments to your creditor following the new plan, you will not be in contact with your creditors. Your trustee will be holding the money and passing it to your creditors. If your trustee holds an amount of money that they are yet to distribute to the creditor at the time of the dismissal, the trustee should return the money to you.
However, there is a process the trustee must follow before returning the money. They must file detailed accounting for the funds before making a refund. The law allows the trustee to deduct pending administrative fees from the money before returning it. While the process may seem straightforward, it could take several weeks or months to get a Chapter 13 dismissal refund.
If you have hired a bankruptcy lawyer to help with your case, the lawyer can also claim unpaid service fees from the funds. In some cases, the refund can be subject to an IRS levy or wage garnishment order since the automatic stay is lifted once the case is dismissed.
What Are Your Options After a Chapter 13 Dismissal?
If the court dismisses your Chapter 13 bankruptcy case, your automatic stay gets lifted, and you do not get bankruptcy relief. Therefore you will go back to being in debt. Nonetheless, it is not time to give up yet. There are still several debt relief options available to you.
First, you can either re-file your bankruptcy case under Chapter 13 or file a new Chapter 7 bankruptcy case. Your ability to re-file depends on why the court dismissed your case. If the case was dismissed due to prejudice, you might need to wait for a definite period before re-filing bankruptcy.
Second, you might consider other debt-relief options like debt settlement. There are debt relief option calculators online, which help you compare the different options and help you decide on the best. These calculators can also help determine if you qualify to file a Chapter 7 bankruptcy case.
Should You Convert to Chapter 7 Before a Chapter 13 Dismissal
If your Chapter 13 case is at risk of being dismissed, you can get ahead of the dismissal and convert your case to Chapter 7. However, there are several things you need to know. While Chapter 7 could offer a quick way out of debt, it comes with risks.
Chapter 7 bankruptcy relief works through liquidation. So, by converting to chapter 7, you risk losing your assets unless a bankruptcy exemption protects the assets' equity. But in some cases, liquidating your assets to get rid of debt could be the fastest and best solution to get yourself out of debt. Analyze the chances of losing your property before deciding to convert your case.
8 Reasons for a Chapter 13 Dismissal
Chapter 13 is ideal if you earn income, but your disposable income is not enough to meet your debt obligations. So, you work on coming up with a between three and five-year plan to pay your creditors an amount lower than the originally agreed amount. Here are eight reasons why your Chapter 13 case could be dismissed;
- Voluntary Dismissal — since Chapter 13 is a voluntary repayment plan, you can choose to quit at any time. The repayment agreement is void when you quit, and the court will dismiss the case.
- Missed Payments — when proposing a payment plan that works for you during the creditors' meeting, you commit to making payment as stipulated in the agreement. Should you miss one payment, the court will dismiss your case. But, in most cases, your bankruptcy attorney will help set up a flexible payment plan that gives you at least a three-month allowance on late payments during hardship. Nonetheless, the court and your trustee will need proof of hardship and good reason before granting the three-month deferment period.
- Failing to Attend Hearings — if you are required to participate in a meeting, for example, the First Meeting of Creditors, and you fail to attend, the court may dismiss the case.
- Not Enrolling or Completing Bankruptcy Courses — when filing bankruptcy, the court needs you to complete two bankruptcy courses — the Credit Counseling Course and the Debtor Education Course. Failing to enroll or complete any of the two courses could result in dismissal.
- Failing to File Your Tax Returns — every debtor is required to file required income tax returns and other returns as the court orders. Failing to do so could result in dismissal.
- Leaving out Bankruptcy Forms — filing bankruptcy is a tedious process that involves a lot of paperwork. There are some documents which you need to submit in time. Leaving them out could result in dismissal.
- Failure to Submit Relevant Documents to your Chapter 13 Trustee — when your trustee requires documents during the case, failing to submit them could result in dismissal.
- Meeting Deadlines —there is a lot of paperwork and deadlines to meet when filing a Chapter 13 case. Failing to meet any of these deadlines could result in dismissal.
What is the Effect of a Chapter 13 Dismissal?
When the court dismisses your Chapter 13 case, the automatic stay is lifted, and you stand no chance of bankruptcy discharge. Therefore, your debts remain unforgiven. So, technically, you still owe all the debts you did when declaring bankruptcy.
If your case was dismissed sometime after you had made several payments, your creditors should credit you for those payments. However, since the automatic stay is lifted, your creditors might pursue you for the remaining amount. These collection efforts can be calls, letters, suing you, repossessions, wage garnishments, and repossessions.
Get Expert Help Choosing the Best Debt Relief Option
What next after a Chapter 13 dismissal? When your case gets dismissed, and the automatic stay is lifted, your creditors can take extreme measures to recover their debt. Call us today for help analyzing other debt-relief options to make an informed decision.