What Happens If My Chapter 13 Bankruptcy Case is Dismissed?

Discharge Your DebtChapter 13 bankruptcy cases typically last three to five years.  During that time debtors are making payments to a trustee and the trustee is disbursing those funds to the creditors as per the terms of a court-approved reorganization plan.  Three to five years is a long time and sometimes things happen that prevent the Chapter 13 case from being completed.  For example, a debtor may get sick, laid off, or divorced, making it impossible for him to make his plan payments.

When a debtor stops making plan payments his Chapter 13 case gets dismissed.  It doesn’t matter how good the reason is for missing the payments.  Without those payments the trustee cannot disburse funds to the creditors and the case comes to an end.  When a case is dismissed the automatic stay protection disappears.  Creditors are free to begin collection efforts.  This may include telephone calls, collection letters, garnishment, foreclosure, repossession, etc.

When a Chapter 13 case is dismissed it is important that the debtor speak to their attorney about what to expect.  Every situation is different and the debtor may be able to mitigate the damages of a dismissed Chapter 13 case if they act fast.  The first thing I consider when a Chapter 13 case is dismissed is whether a vehicle claim was being paid through the plan.  The reason is that depending on the terms of the plan, the debtor may be behind on the payments owed to the creditor based upon the original contract terms.  If the debtor is behind on their payments then the vehicle may be repossessed at any time, leaving the debtor with no way to get around.  In this situation I will usually suggest to the debtor that they immediately contact the creditor and try to work out a payment arrangement to allow them to get caught up.  Sometimes debtors can refile Chapter 13 cases in order to get the automatic stay protection put back in place.  If the circumstances that led to the first case being dismissed were temporary or have been resolved then filing a new case may be a very good option.