When you file a Chapter 13 bankruptcy, the court will devise a repayment plan for you and appoint a trustee to oversee it. If, however, you fall behind on your payments, you may find yourself dealing with a trustee motion to dismiss Chapter 13. If the court agrees to dismiss your bankruptcy case, your bankruptcy protection ends and your creditors may once again pursue collections against you. The bank may also resume any pending property foreclosures that the bankruptcy action stopped. Fortunately, you have the chance to respond when the trustee files a motion to dismiss your case. How you respond, however, depends on your situation and which option you and your attorney feel is best.
Chapter 13 Dismissal Options
If your trustee wants to dismiss your case, you may choose to do nothing and let the dismissal happen. If the court dismisses your case without prejudice, you may file a new Chapter 13 case or file a Chapter 7 case. If you feel the trustee is acting unfairly, you can explain why to the judge and see what she decides. If you agree that you've fallen behind on your payment plan, you may also ask the court to modify your plan rather than dismissing your case altogether. Each option has pros and cons, so weigh your choice carefully.
The simplest option if your case is up for dismissal is to do nothing, and in some cases this is the best option. The fact that you filed a bankruptcy will still show on your credit report for seven to 10 years, even if the case gets dismissed. But once you have a dismissed bankruptcy in Chapter 13, your repayment plan ends. If the plan was proving too difficult for you, ending it will relieve this pressure. You'll still owe your creditors, however, so try to work with them on your own to pay down your debts. If the repayment plan you had with the court has helped you pay off some of your creditors and improve your financial situation, you may find paying your remaining debts on your own easier.
If you don't, a dismissal without prejudice means you're not in bankruptcy anymore, so you can refile. Remember, however, that a dismissal also revokes your bankruptcy protection. Your mortgage lender can resume foreclosure after Chapter 13 dismissal, and your other creditors may resume collection activities against you, including wage garnishments and property repossessions. If you can't devise a satisfactory repayment plan on your own, filing a new bankruptcy will restore your protection.
Refile Your Bankruptcy
If the court dismisses your bankruptcy, you can file again. If your financial situation has deteriorated, you may now be eligible to file Chapter 7 bankruptcy. If you are, the court will seize any unprotected assets and give them to your creditors. Whatever debt remains gets discharged, and you aren't obligated to repay it. Know that even under Chapter 7, some debts like child support and back taxes aren't eligible for discharge and will need to be repaid.
If you aren't eligible for Chapter 7 bankruptcy, you may file a new Chapter 13 case. If you do, the court will establish a new repayment plan for you based on your current situation. You may find this new plan easier to meet. Make sure that you think carefully about dismissing a Chapter 13 bankruptcy only to file another one, however. The court expects you to file in good faith and with the intention of following through with your repayment plan. If you file a second bankruptcy and fail to honor your repayment plan again, the court can dismiss your case and prevent you from filing for bankruptcy again for a period of time.
Catch Up or Request a Modification
If you've fallen behind on your repayment plan, you have two choices for saving it without having your case dismissed. The first is to catch up. You can agree to make extra payments or use a lump sum such as your tax refund to get back on track. If you can't catch up or comply with your plan, you can ask the court to modify it. The court will often grant a modification if your situation has changed through no fault of your own. Perhaps after establishing your repayment plan you were unexpectedly laid off or experienced a serious medical issue that resulted in large hospital bills. If you can prove you've suffered a hardship, the court may agree to restructure your plan rather than dismissing your case. This option lets you keep your bankruptcy protection and move ahead with a new repayment plan.
Object to the Dismissal
Just because your trustee asks for a dismissal doesn't mean he'll get one. If you feel that the trustee is asking for a dismissal unfairly, you may request a hearing and tell the judge why. You may object to the dismissal if you feel the trustee is acting on erroneous information. If, for example, the trustee claims you missed a payment but you have a canceled check proving otherwise, you'll want to object to your dismissal. You'll need a good reason to object to your dismissal, however, and you must have evidence to support your claim that there has been a mistake.
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