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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.

1) How Does a Chapter 13 Dismissal Refund Work?

A Chapter 13 trustee can hold any money that remains undistributed to creditors. This money returns to the debtor after a Chapter 13 dismissal. However, 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. 

Also, 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 This is because the bankruptcy automatic stay is no longer in effect after a dismissal.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.

2) What Are your Chapter 13 Dismissal Options?

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 to re-file 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.

Converting to Chapter 7 Before a Chapter 13 Dismissal

You might have the option to convert to Chapter 7 before the dismissal of your Chapter 13 case. Converting to Chapter 7 can erase debts quickly. However, some risks exist with converting to Chapter 7. 

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 might be worth losing an asset to get rid of debts quickly in Chapter 7. However, you should carefully analyze your risk of losing property before converting to Chapter 7. You can get more information about the Chapter 7 bankruptcy process in our Chapter 7 overview.

3) What are Common Reasons for a Chapter 13 Dismissal?

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:

  • Voluntary dismissal — A Chapter 13 case is a voluntary repayment plan. A debtor (the person who files for bankruptcy relief) can quit Chapter 13 at any time.
  • Missed Chapter 13 payments — If you miss your Chapter 13 payments, the courts will dismiss your case. However, most bankruptcy attorneys calculate Chapter 13 plans with a little bit of room that allows for a suspension of payments for three months in case of a hardship. The Chapter 13 trustee and the bankruptcy judge examine the reason for the request very carefully before granting a 3-month deferral of Chapter 13 payments.
  • Failing to attend hearings — If you do not attend your 341 First Meeting of Creditors hearing or any other Chapter 13 hearing, the court may dismiss the case.
  • Failure to complete bankruptcy courses — You must complete two bankruptcy courses as part of your bankruptcy case — the Credit Counseling Course and the Debtor Education Course. 
  • Failing to file required tax returns — Debtors must file all required income tax returns or other tax returns as scheduled.
  • Failure to file all bankruptcy forms — You must complete and file your bankruptcy forms. Failing to file any required form could result in a dismissal of the Chapter 13 case.
  • Failure to submit required documents to the Chapter 13 trustee — The Chapter 13 trustee may require certain documents. Failing to submit the documents could result in dismissal. 
  • Meeting deadlines — There are numerous deadlines in a Chapter 13 case. Failing to meet any deadline set by the court or by the Bankruptcy Code could result in a Chapter 13 dismissal.

4) What is the Consequence of a Chapter 13 Dismissal?

When a Chapter 13 case is dismissed, your debts are not discharged or forgiven. In other words, you owe all the debts you did when you entered bankruptcy. 

Your creditors 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. 

Get Help Deciding Between Debt Relief Options

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 pros and cons to make the most informed decision.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

10 Replies to “Chapter 13 Dismissal Refund and Your Options”

  1. Hello..My chapter 13 was dismissed….In my current situation, rather thn re-filing, i may be able to pay the debts that I owe. My question is, when the creditors start to send me my bills again, will the balance be when i entered bankrupcy 8 months ago or will it add late charges for the past 8 months. Thanks

  2. How do I dismiss my bankruptcy chapter 13 . I can pay my creditors now abs save money since all is paid down and the rate I am paying is high in bankruptcy

    1. Hey Kristi, I believe non-payment may have the Chapter 13 trustee file a motion to dismiss the case. Have you stopped paying on your Chapter 13 bankruptcy?

  3. I want to end Chapter 13 and filed due to student loans over $187,000. However, I did have credit cards abt $10,000 that were current.I pay $500 per month for bankruptcy. Each year Trustee take 1/2 of my tax refund and two car settlements they took the majority. I feel ripped-off. Before bankruptcy creditors never bothered me. Prior to my filing Chapter 13 my car balance was $13,450 but being in bankruptcy it shows I paid $8573 of $15600. How did the balance owed for my car increase. I started bankruptcy in April 2018. What should I do?

    1. Hey Lisa, oh, I am sorry about your experience. I’d like to hear more about the Chapter 13 care balance. Do you have a few minutes to catch up? I also sent an email to the email you provided from my email address.

  4. I am trying to sell my house and thinking of dismissing my Chapter 13 and will pay all credit cards off with the proceeds from the sale of my house.
    Since I do not have 4 – 6 weeks to wait on the court to give me the ok on and offer. Plus I am having a very hard time securing a rental due to my bankruptcy and I needs a clearance letter.
    Is this a smart way to go?

  5. Hi,
    I’ve recently been discharged from a ch 13 that was filed in 2017. I have some tax debt that is priority and must be paid, however, with the older debts being from 2014/2015 and before, will they be able to still come
    After me?

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