The process of declaring bankruptcy can be complicated. However, few people who have started the process imagine that their bankruptcy might be unsuccessful.
What happens if your Chapter 13 is dismissed?
Dismissed vs. Discharged Chapter 13: What’s the Difference?
When it comes to bankruptcy, you might wonder: Is discharged the same as dismissed?
If you file for Chapter 13 bankruptcy and keep up with your debt repayment plan, the court will likely discharge your remaining debt at the end of the repayment term.
When the debt is discharged, it’s effectively erased. So, you no longer have to pay it back.
Having your Chapter 13 dismissed vs. discharged is a different situation. If your Chapter 13 filing is dismissed, it means the court has thrown out your bankruptcy case.
There are several possible reasons for dismissal, but some of the most common include:
- Failing to file the required paperwork by the court’s deadlines
- Failing to pay the required filing fees
- Not attending the 341 meeting, also known as a creditors meeting
- Not attending credit counseling before filing for bankruptcy
- Not keeping up with your repayment plan
Bankruptcy can be extremely stressful, and keeping up with deadlines and requirements can be more challenging than it sounds. Working with an attorney is therefore an essential part of filing for bankruptcy.
What Happens if Your Chapter 13 Is Dismissed?
How does a dismissed Chapter 13 affect your credit? Can creditors resume the collection process?
When your Chapter 13 bankruptcy is dismissed, it triggers a cascade of consequences.
The Automatic Stay Is Removed
You might already know that as soon as you file for bankruptcy, an “automatic stay” is put in place. This is a court order that bars creditors and collectors from trying to recover debts.
With an automatic stay, foreclosure proceedings, repossessions and debt lawsuits are effectively paused. Any existing wage garnishments stop, and collectors are prohibited from calling you or sending letters.
However, after a Chapter 13 dismissal, that automatic stay is lifted.
Collectors Can Resume Trying to Recover Your Debts
Collectors may resume any collection activities. If you were in the midst of a lawsuit, foreclosure or other legal proceeding when you declared bankruptcy, those proceedings may resume.
Can you negotiate with creditors after Chapter 13 dismissal? Just like before you declared bankruptcy, you or your lawyer may try to negotiate settlements with your creditors.
Keep in mind, however, that your creditors are under no obligation to accept any kind of settlement offer.
Your Debt Won’t Be Discharged
Chapter 13 doesn’t immediately discharge your debts. However, once you’ve completed a three- or five-year repayment plan, any remaining balance will be discharged.
If your Chapter 13 bankruptcy is dismissed, your debts won’t be discharged. Instead, you’ll have to repay them in full.
What Happens if I Voluntarily Dismiss My Chapter 13?
Sometimes, Chapter 13 bankruptcy is dismissed by the debtor themselves, not the court. If you voluntarily dismiss your case, you’ll still face the effects mentioned above.
When you voluntarily dismiss your Chapter 13 bankruptcy case, none of your debts will be discharged. In most cases, the downsides of voluntary dismissal outweigh the potential benefits, but there are limited instances where dismissing the case yourself could be your best option.
For example, imagine you’ve been following your repayment plan when your income doubles. The amount you’re required to repay depends on your disposable income. If you think you’ll pay less overall if you negotiate directly with your creditors, it might be best to dismiss the case.
This isn’t a decision you should make lightly. It’s imperative that you consult your bankruptcy lawyer before you decide to dismiss the case.
What Can You Do if Your Chapter 13 Is Dismissed?
Do you wonder, “What happens if my Chapter 13 is dismissed?” The good news is that you have options. They include:
- Filing an appeal (usually within 14 days of dismissal)
- Refiling for Chapter 13 bankruptcy
- Requesting a modification of your repayment plan if missed payments led to dismissal
- Negotiating with creditors
Your next steps can have a substantial impact on your credit and finances. Before you commit to any course of action, you should turn to an experienced bankruptcy lawyer for advice.
Chapter 13 Dismissed? Don’t Give Up
What happens if your Chapter 13 is dismissed? For many people, simply declaring bankruptcy is emotionally difficult. If you file Chapter 13 bankruptcy just to have it dismissed, you might be tempted to give up.
However, dismissal is a setback, not the end. A bankruptcy lawyer may be able to help you determine how to stop a Chapter 13 dismissal. Even if you can’t stop it right now, your lawyer can help you decide on the best course of action so you get back on track.
