Having your Chapter 13 bankruptcy dismissed can be very overwhelming and lead to a lot of extra stress. This can result in collection calls restarting, letters, emails, and debt collectors pounding on your phones. For example, a Chapter 13 dismissal will show on your public record. While you may receive a refund, you should consider thinking about your Chapter 13 dismissal options to make the most informed decision to get out of debt.
There are many valid reasons why you can't complete your Chapter 13 bankruptcy case, especially if you recently became unemployed. Common issues include payments that are too high, unemployment, illness, or financial hardship. Sadly, there are consequences for not completing a Chapter 13 plan. This article discusses those consequences, your next options, and whether you can get a Chapter 13 dismissal refund.
A Chapter 13 trustee can hold any money that remains undistributed to creditors. This money returns to the debtor after a Chapter 13 dismissal. Have you not received your refund? See your options below. The Chapter 13 trustee must file a detailed accounting with the court before returning any money to the debtor. The court allows the Chapter 13 trustee to first deduct any administrative fees before returning the funds. It could take several weeks or months to receive a Chapter 13 refund after dismissal.
It is also important to note that your bankruptcy attorney may make a claim on those funds for unpaid professional fees. In some cases, the refund could also be subject to a wage garnishment order or an IRS levy. This is because the bankruptcy automatic stay is no longer in effect after a dismissal. Without the stay, creditors can start taking action to collect their debt again.
As debt collectors may be able to see in the public records when a Chapter 13 is dismissed, you should consider understanding your options after Chapter 13 dismissal.
You have several options for debt relief after a Chapter 13 dismissal. You can re-file under Chapter 7 or Chapter 13. However, depending on the reason for the dismissal, the automatic stay may not go into effect without filing an additional motion with the court. There could also be a penalty period before the automatic stay becomes effective. During this time, creditors could continue to pursue actions to collect debts. Also, the dismissal of a Chapter 13 case with prejudice may result in a mandatory waiting period before re-filing for bankruptcy.
Regardless, we built the following debt relief options calculator to help you compare your different options once your Chapter 13 has been dismissed. The most common may be debt settlement or converting to a Chapter 7 before a dismissal. The Debt Relief Options calculator uses bankruptcy forms to estimate whether you would qualify for a Chapter 7. We provided some additional information below the calculator for you to review.
Before you decide to dismiss your Chapter 13, it may be worthwhile to explore whether or not converting to Chapter 7 before the dismissal of your Chapter 13 case makes more sense. In some instances Converting to Chapter 7 can erase debts quickly vs trying to struggle through making your Chapter 13 payments for the remainder of your plan. For many people, that is a huge relief.
That being said, however, some risks exist with converting to Chapter 7.
If you were to convert to a Chapter 7, any assets with equity could be at risk of being sold by the Chapter 7 trustee unless a bankruptcy exemption protects the equity. In some cases, it may be worth losing an asset to get rid of debts quickly in Chapter 7. You really want to understand the numbers and the potential risk involved before converting to Chapter 7. You can get more information about the Chapter 7 bankruptcy process in our Chapter 7 overview.
A Chapter 13 plan is typically a 60-month commitment. Some individuals may qualify for a 36-month bankruptcy plan. In either case, three to five years is a long time to be in bankruptcy. Many things can happen during that time. Some common reasons for Chapter 13 case dismissals include:
When your Chapter 13 case gets dismissed, your debts don't vanish. There is no discharge, which essentially means that you are back where you started. You still owe the debts you had when you first filed.
The creditors included in your bankruptcy must give you credit for any payments they received from the Chapter 13 trustee. However, your creditors can begin collection efforts as soon as your bankruptcy case is dismissed. Collection efforts can include: calling you, sending you letters, filing debt collection lawsuits, wage garnishments, repossessions, and foreclosures.
When a Chapter 13 bankruptcy is dismissed, your creditors may start to contact you to collect the debt that was previously due. Take the Chapter 13 dismissal options calculator below to understand your options, estimate costs, and compare the pros and cons to make the most informed decision.
