You filed for bankruptcy, but maybe it’s not working out.
When filing your Chapter 13 case, you have a new repayment plan to ensure you pay off your creditors within 3 to 5 years. Sometimes, unexpected things could happen in the course of your repayment duration. You could lose your source of income, get sick, spend all your funds on medical bills, or experience extreme financial hardship that makes it impossible to follow through with your repayment plan.
Unfortunately, failing to complete your Chapter 13 plan comes with consequences such as dismissal although you may have filled our the debtor’s form for voluntary dismissal.
Our article covers a Chapter 13 bankruptcy dismissal refund, its consequences, and your other options.
What is a Chapter 13 Dismissal Refund?
When you fail to follow through with your Chapter 13 repayment plan, the court dismisses your case; however, sometimes, your case can be dismissed due to factors beyond your control. For example, if you lose your job and lack enough money to continue making payments, it is beyond your control if you don’t contribute to losing your job. So, in some cases, you might get a Chapter 13 dismissal refund.
How a Chapter 13 Dismissal Refund Works
When you file for a Chapter 13 bankruptcy, the court will assign a Chapter 13 bankruptcy trustee. The role of the trustee is to represent your creditors and collect money from you to distribute to the creditor.
Any money held by the trustee should return to you once your case is dismissed and is termed as a Chapter 13 dismissal refund. However, before surrendering the money back to you, the court requires the trustee to file a detailed accounting of the funds. The court allows the trustee to deduct any pending administrative fees from the funds before issuing a refund. So, it might take some weeks or months to get a Chapter 13 refund after the court dismisses your case.
If you were working with a bankruptcy attorney, they could also claim their fees on those funds for their unpaid professional expenses. When the court dismisses your case, the automatic stay on your account is lifted. So, depending on your case, the refund may be subject to an IRS levy or wage garnishment. Additionally, creditors may begin retaking collection action on the debt.
Your Options after Chapter 13 Dismissal
After the court dismisses your case, you can try other debt-relief options to get out of debt. First, you can refile bankruptcy either under Chapter 13 again or under Chapter 7 (if you qualify). The decision to re-file will depend on why your case was dismissed. In some cases, even after re-filing for bankruptcy, you might need to file an additional motion with the court to get an automatic stay on your accounts.
Additionally, you might need to wait for a penalty period before the automatic stay takes effect. During this waiting period, your creditors can take collection action against you. If your case was dismissed due to prejudice, you might wait for a specified period before being allowed to re-file for bankruptcy.
You can use an online debt-relief options calculator to compare different options after dismissal. Each case is unique, and depending on the reason for dismissal, you might convert your case or opt to file Chapter 7 bankruptcy. Check if you qualify for Chapter 7 bankruptcy, and consult a bankruptcy attorney to see if you need to wait for a mandatory duration before re-filing bankruptcy.
What You Need to Know About Converting from Chapter 13 to Chapter 7 before a Dismissal
If you lose your income or fall ill and realize you barely have enough to adhere to your Chapter 13 repayment plan, you can choose to convert to Chapter 7 bankruptcy before dismissal. Chapter 7 takes a relatively shorter time and can help you get rid of debt quickly. However, there is a risk of losing your property.
Unlike Chapter 13 bankruptcy, which offers a flexible repayment plan, Chapter 7 focuses on liquidation. The bankruptcy trustee assigned to your Chapter 7 case will go through a list of your property, determine the non-exempt equity, and see if it is worth liquidating and using the amount to repay your creditors. So, it is wise to consult an attorney before converting. They can help you analyze the risk of losing your property and advise you if filing is the best option.
8 Common Reasons for Chapter 13 Dismissal
There are many reasons for Chapter 13 dismissal.
A Chapter 13 case takes between 3 years and five years to complete. It allows you to reorganize and restructure your debt to pay your creditors over a long time. Unfortunately, three years or more is a long time to be in bankruptcy, and many can happen. Eight common reasons Chapter 13 cases get dismissed are;
1. Voluntary dismissal- filing a Chapter 13 case is a voluntary choice. So, you can choose to quit at any time, resulting in a dismissal of your case.
2. Leaving out some bankruptcy forms- when filing for bankruptcy, there are numerous bankruptcy forms you must complete and file with the court, failing to file all the required forms could result in a dismissal. To ensure this doesn’t happen, always hire a bankruptcy attorney to help with your case.
3. Not filing tax returns documents- when filing for bankruptcy, the court might require proof of income tax returns or other tax returns documents. Not submitting these documents on time could result in a dismissal.
4. Missing bankruptcy courses- the court requires debtors to enroll in bankruptcy courses to educate them on bankruptcy and financial matters. Failing to attend or complete these bankruptcy courses results in dismissal.
5. Not attending hearings- you should always be present for your case hearings and the Meeting of Creditors. The court might dismiss your case for failing to attend these hearings.
6. Missing deadlines- when filing your petition, there are a lot of documents to submit and numerous deadlines. Failing to submit required documents within the deadline might result in a dismissal.
7. Failing to submit documents to your assigned trustee- the court will assign a Chapter 13 trustee during your case. The trustee might require some documents pertaining to your case. Not submitting these documents might result in dismissal
8. Falling behind on your payments- the court can dismiss your case if you miss or fall behind on your payments. Although there is a hardship allowance of three months, you can request a suspension for payments. You must convince the court of your hardship situation before granting a payment deferment period.
What is the Effect of a Chapter 13 Dismissal?
After dismissal, you could consider bankruptcy alternatives.
The main aim of filing bankruptcy is to get a debt discharge at the end of the case. You don’t get a debt discharge when the court dismisses your case. So, you will be legally responsible for repaying your debts.
However, if you had made some payments under your Chapter 13 repayment plan, your creditors must acknowledge these payments and give you credit for the payments made until the dismissal.
The automatic stay is lifted once your case is dismissed, and your creditors can continue pursuing you. They can use collection efforts like calling you, sending you letters, suing you, foreclosure, wage garnishment, or repossessions.
Need Help Choosing The Best Debt Relief Option?
It can be overwhelming when your case gets dismissed as your creditors resume collection actions against you. Fortunately, there are other debt-relief options available after dismissal. Comment today and understand your best options.