Some individuals are unable to complete their Chapter 13 bankruptcy case and are wondering about the Chapter 13 dismissal refund and the current options. The reasons why they are unable to complete the Chapter 13 repayment plan vary, but include the Chapter 13 payment too high, unemployment, illness, or other financial hardships. If an individual cannot complete the Chapter 13 plan, the Chapter 13 case is dismissed. However, there are other reasons for the dismissal of a Chapter 13 case, in addition to the non-payment of plan payments.
There are consequences for not completing a Chapter 13 plan. Let’s look at what happens when a Chapter 13 case is dismissed in more detail.
How Does a Chapter 13 Dismissal Refund Work?
The Chapter 13 trustee may be holding money that has not been distributed to creditors. This money is returned to the debtor after a Chapter 13 dismissal.
However, the Chapter 13 trustee must complete a detailed accounting and file the accounting with the court before any money is returned to the debtor. The court allows the Chapter 13 trustee to deduct administrative fees that may be due to the court or the trustee from the funds the trustee is holding before returning any funds to the debtor. It could take several weeks or months to receive a Chapter 13 refund after dismissal.
Furthermore, your bankruptcy attorney may have a claim against the funds for unpaid professional fees. In some cases, the refund could be subject to a wage garnishment order or IRS levy, because the bankruptcy automatic stay is no longer in effect after a dismissal. The automatic stay is what prevented creditors from taking actions to collect debts during the Chapter 13 case. The automatic stay ends when a case is dismissed or closed.
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 why Chapter 13 cases are dismissed include, but are not limited to:
- Voluntary dismissal — A Chapter 13 case is a voluntary repayment plan. A debtor (the person who files for bankruptcy relief) can choose to quit Chapter 13 at any time during the case.
- Missed Chapter 13 payments — If you miss your Chapter 13 payments, your case is dismissed. 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 are required to 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 involved 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.
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 immediately begin collection efforts as soon as your bankruptcy case is dismissed. Debt relief actions include, but are not limited to, calling you, sending you letters, filing debt collection lawsuits, wage garnishments, repossessions, and foreclosures.
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 get rid of debts quickly. However, there are some risks associated 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.
What Are Your Options After a 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, dismissal of a Chapter 13 case with prejudice may result in a mandatory waiting period to re-file bankruptcy.
You may also negotiate with your creditors to repay the debts you owe. A creditor may accept a repayment plan or a lump-sum payment to avoid collection actions. Debt settlement has its pros and cons. You may want to explore other debt-relief options, including debt consolidation loans.
Get Help Deciding Between Debt Relief Options
Ascend helps you compare your debt-relief options to find the best option for your situation. It is wise to explore all the ways to get rid of debt before making a decision regarding debt relief. Get started now to see how Ascend can help with your debt problem.