Chapter 13 bankruptcy dismissal can happen for a variety of reasons, some of which can be accidental or unexpected. In order to avoid dismissal or failure in your Chapter 13 bankruptcy case, read through this article to see the reasons that can impact the success of your case.
What is Filing for Bankruptcy?
Filing for bankruptcy is a legal proceeding for individuals who have overwhelming amounts of debt that they can no longer repay. Sometimes dismissal happens because of unexpected circumstances like unemployment, medical expenses, and more. Sometimes this happens because of poor financial decisions. Whenever you are at the point where you can no longer afford to pay your minimum debt payments along with your normal living expenses, it may be time to consider filing for bankruptcy or looking at bankruptcy alternatives.
What is Chapter 13 Bankruptcy?
There are two common types of bankruptcy for individuals: Chapter 7 and Chapter 13. Chapter 7 bankruptcy involves liquidating your non-exempt assets to pay back your creditors. Chapter 13 bankruptcy is much less drastic.
If you still have at least a small sum of ‘disposable income’ at the end of each month, you could be a good candidate for Chapter 13 bankruptcy. Disposable income is money that is not used up on necessary living expenses like rent, food, and utilities. If you have disposable income at the end of every month, then you are still able to make payments to creditors, though it may not be the full amount. If this is the case, Chapter 13 bankruptcy can help you create a new debt payoff schedule that will allow you to pay off your debt over a longer period of time without the fear of having your things repossessed or foreclosed on.
When you file for Chapter 13 bankruptcy, a few things happen. First, the court places all of your debts under an automatic stay. This means that the creditors and lenders you borrowed money from are no longer allowed to aggressively pursue you for repayment. Secondly, a bankruptcy trustee coordinates a meeting with all of your creditors to create a new debt payment schedule. When the creditors come to an agreement on the debt payment schedule, you will begin making payments based on the new schedule. Once this is complete, the court will discharge some of your unsecured debt. Should you follow this schedule perfectly, the odds are you will have paid off your non-exempt debt within 3-5 years. However, there are a few reasons why the court may dismiss your Chapter 13 case.
Reasons for Chapter 13 Dismissal
Taking a step towards a financially stable future is a great decision. However, making the decision and filing for bankruptcy is not the end of your responsibility in this process. Having a successful Chapter 13 bankruptcy means that you will have to continue working towards coming out of debt by committing every disposable dollar to your debt. The process can be difficult, but in the end, the hope of a clean slate is something worth fighting for. Many things can pop up that can make following through with your Chapter 13 plan a challenge. Losing your job, unexpected medical emergencies, and divorces are all common occurrences that can make Chapter 13 bankruptcies even more difficult. To protect against the dismissal of your case, it is important to understand some of the major reasons for a Chapter 13 dismissal. Here are a few of the reasons:
Committing Bankruptcy Fraud:
At the beginning of your bankruptcy case, you will have to file a petition that outlines your exact financial situation. This includes income, assets, debts, and anything else pertaining to your financial estate. If at any point, you lie or fail to disclose information regarding your financial status, you risk a dismissal of your case if the courts discover it. It is always better to be fully honest upfront, otherwise, you could not only have your case dismissed, but you could also incur a criminal fine or even face jail time.
Failure to Complete the Mandatory Classes:
The goal of the bankruptcy process is to set you up for a brighter financial future. To ensure this is a possibility, the court will mandate money management and personal finance classes. These are designed to set you up for success so that you won’t find yourself in a similar situation just a few years down the road. If these classes are not attended, there is a possibility that the court will file a dismissal of your case. Take these classes seriously, as they will not only keep your case in the court, but they will also help in the future!
Not Paying the Court Fees:
Throughout your bankruptcy process, there may be court fees that occur. If you are working with an attorney, they can help keep you on top of all the payments. However, should you miss a payment, the court may dismiss your case. If you are not working with legal representation (something that is not suggested) make sure you have a way of fully understanding when fees are due and what you owe.
Not Filing Required Forms and Correct Documents:
When you initially file for bankruptcy, you will have to fill out a lot of forms. It can be overwhelming if you are on your own, but you will want to make sure you fill out absolutely everything you can. If you don’t, the court may reject, or later dismiss, your case.
Missing Any Creditor Meetings or Confirmation Hearings:
In Chapter 13 bankruptcy, there are two very big meetings. One is the meeting of the creditors, at which you present your proposed debt repayment plan. Creditors must come to a consensus and agree on the new plan before moving forward. Afterwards, there is a confirmation hearing, at which point you would agree to the new schedule of repayment. Missing either of these could result in the court dismissing your case.
The entire goal of filing for Chapter 13 bankruptcy is to reorganize how and when you pay off debt. Typically, the payment plan decreases your payments, but it’s drawn out over an extended period of time. The stipulation is, you cannot miss a payment. If you miss a single payment, creditors can decide they no longer want to abide by the new payment schedule, and the court will lift the automatic stay on your account.
Following the guidelines for Chapter 13 bankruptcy can be difficult, but if you want to continue with your new debt repayment plan, it is important to follow them. If your Chapter 13 payment plan installments seem too high, make sure you talk with your bankruptcy trustee to see if something can be done to help.
What Happens After Chapter 13 Case Dismissal
There are two major things that happen if the court dismisses your case:
- Loss of Automatic Stay: The court will lift the stay on your account. This means that creditors will once again begin to pursue you for your debts. You are also no longer protected from wage garnishes, repossession, and foreclosure.
- Liable for Debts: Similar to the first, you will now be fully responsible for your debts. In both Chapter 7 and Chapter 13 bankruptcy, there is a chance that the court forgives some of your debt. However, when the court dismisses your case, the chance of debt forgiveness is gone.
When Can I File Again After Dismissal?
Everyone makes mistakes or finds themselves in situations that they can’t help. Fortunately, you will have the opportunity to try and file for bankruptcy again after only 180 days. After this time has passed, you will be able to start the process back over, and hopefully be successful.