Most people who consider filing Chapter 13 bankruptcy to dismiss their debts don’t discuss it with their attorney. To ensure you make an informed choice, our team will discuss your post-dismissal options, the potential refunds, and anything else in the Chapter 13 dismissal.
It is important to weigh the pros and cons of voluntary dismissal of Chapter 13 before deciding on Chapter 13 dismissal. In this article, we’ll cover the following topics:
- An overview of Chapter 13, Bankruptcy Dismissal
- Advantages of Opting for a Voluntary Dismissal in Chapter 13
- Disadvantages of choosing a voluntary Dismissal in Chapter 13
- The consequences of voluntarily terminating your Chapter 13 Bankruptcy
- Duration of the process of Dismissing a Chapter 13 Bankruptcy Matter
- Creditors After Chapter 13 Dismissal
Unfortunately, clients only consult the attorney after they file the bankruptcy dismissal, not before. Letting your attorney know before filing is crucial to understand the implications of voluntarily dismissing a Chapter 13 bankruptcy plan before engaging in one.
Continuing with the plan may be unreasonable due to a significant increase in the monthly payment plan. For such reasons, consider exploring the option of dismissing your Chapter 13 bankruptcy plan example.
An Overview of Chapter 13 Bankruptcy Dismissal
The voluntary Chapter 13 dismissal allows you to exit the payment at any point. All you need to do to proceed with the dismissal is fill out the voluntary Chapter 13 dismissal forms and file a motion. While opting for dismissal, it’s important to consider the pros and cons of bankruptcy before making a final decision.
Some circumstances, like illness or injury, may hinder your ability to complete the payment plan as planned. In this case, you should consider filling a Chapter 13 Hardship Discharge. Unlike the voluntary dismissal form, the hardship discharge enables you to dismiss Chapter 13 immediately.
While several reasons lead to Chapter 13 bankruptcy dismissal, below are the most common ones:
- Non-compliance with the requirements and deadlines
- Failing to file annual tax returns or provide a copy to the trustee
- Defaulting to make Chapter 13 monthly payments.
If you are considering a Chapter 13 dismissal due to an unaffordable payment, consider converting your Chapter 13 to Chapter 7 first. A Chapter 7 bankruptcy is more affordable, and you can dismiss it within 120 days. Before opting for a Chapter 13 dismissal, assess if you meet the eligibility criteria for Chapter 7 bankruptcy. Considering this option may save you time and money in the long run.
What does it Take to Qualify for a Chapter 7 Bankruptcy?
First, you may considering taking the Chapter 13 calculator to estimate your bankruptcy plan. If you are dismissing a Chapter 13, you may consider Chapter 7 bankruptcy.
To file for a Chapter 7 bankruptcy, also known as liquidation bankruptcy, you must meet several requirements depending on the Chapter of bankruptcy you are pursuing. For example, you will only be eligible for a Chapter 7 bankruptcy if your monthly income in the previous six months is lower than the median income of a same-sized household.
Other requirements include:
- Annual Household Gross Income
- Household Size
- State of Residence
- Monthly Disposable
When taking the Chapter 7 means test, there are two parts that are considered. First, your household annual gross income, and second, your monthly disposable income.
Converting to a Chapter 7 Bankruptcy
Converting from Chapter 13 to a Chapter 7 can be a big decision, and it is important to familiarize yourself with the process before making a choice. If you are considering converting, it’s a good idea to consult your current bankruptcy attorney. They can help you determine if you are eligible for Chapter 7 and whether or not it’s the right choice.
One of the main considerations to keep in mind when converting from Chapter 13 to Chapter 7 is the potential impact on your home. You can review the bankruptcy homestead exemption to determine if you’ll be able to keep your home in a Chapter 7 bankruptcy. The conversion process requires careful consideration of your circumstances and a thorough understanding of bankruptcy.
Advantages of Opting for a Voluntary Dismissal in Chapter 13
While there may be a few instances where the benefits outweigh the drawbacks, it is still helpful to know what they are.
One of the potential pros of voluntary dismissal is an increase in income during the Chapter 13 bankruptcy case. Although this is a positive development, it may affect your monthly Chapter 13 payment plan. For instance, if your income increases, your monthly payment may need to be adjusted to account for this change.
Also, note that voluntary dismissal can affect your financial standing and future bankruptcy options. While a voluntary dismissal may seem like a straightforward choice, there are complex factors to consider.
Here’s a good example:
Let’s assume Julia has been in a Chapter 13 bankruptcy for several months and is anticipating an increase in her monthly income by $1,000. This increase may impact her monthly disposable income, which is a critical component of the Chapter 13 bankruptcy plan. The increase in income may need to be included in her monthly disposable, which she pays directly to her creditors.
Given the recent change in Julia’s financial situation, she may consider dismissing her Chapter 13 case and opting for a debt negotiation approach to resolving her debts. This could be a cost-saving option for her, but it’s also important to keep in mind that there are potential drawbacks.
Julia’s situation highlights the importance of staying informed about changes in one’s financial standing during a Chapter 13 bankruptcy case.
Disadvantages of Choosing a Voluntary Dismissal in Chapter 13
Although a voluntary dismissal can have serious consequences, it may be the best option in some instances. Below are some downsides to consider before opting for voluntary dismissal in chapter 13.
- You are at potential risk of Losing Automatic Stay in a Future Bankruptcy Case. This legal protection stops creditors from pursuing collection activities in a future bankruptcy case.
- You may add your interests and penalties to your debts, including when you were in the Chapter 13 case.
- You will still be responsible for paying your debts back because they will not be discharged.
- A voluntary dismissal will reduce your credit opportunities, making it harder to secure loans in the future.
- There may be a waiting period before you become eligible to file for bankruptcy again.
The Consequences of Voluntarily Terminating Your Chapter 13 Bankruptcy
Once you dismiss your Chapter 13 case, the automatic stay protection gets lifted. This means that creditors and collection agencies may start contacting you again.
Even though you have terminated your Chapter 13 bankruptcy, you will still owe your previous debts. However, your debts may reduce if you pay your unsecured debt through your Chapter 13 plan. Since you will still need to address the unsecured debt, it’s essential to understand the Chapter 13 dismissal refund and your options before proceeding.
Your attorney can help you understand the impact of dismissal on your credit and advise you on how to minimize any potential damage. Additionally, they can help you if debt negotiation or bankruptcy may be a better option for your needs.
Common Options After a Voluntary Chapter 13 Dismissal
It’s crucial to understand the available options ad their implications if you consider dismissing your Chapter 13 bankruptcy. A personalized assessment of your financial situation can help you make an informed decision. Our free Chapter 13 dismissal debt options calculator provides a detailed analysis of the cost, qualification, and pros and cons tailored to your circumstances.
A calculator will give you a better understanding of what to expect if you voluntarily dismiss your Chapter 13 case.
After Chapter 13 bankruptcy dismissal, most individuals typically consider these options:
- Debt Negotiation
- Refiling Bankruptcy
- Paying Creditors Directly
Debt Negotiation
The process of debt negotiation involves resolving outstanding debts with creditors by reaching a mutually agreed upon settlement. Additionally, this process may involve working directly with creditors or using the services of a debt settlement company.
When deciding whether to work with a debt settlement company, it’s important to consider factors such as
- The number of creditors
- Pending lawsuits,
- The total amount owed, and
- The list of creditors you owe.
Should I Work with a Debt Settlement Company?
A debt settlement company can be useful if you have a long list of creditors, remembering that they come with fees and may have different expertise than you in settling each account. While debt negotiation can reduce your debt, there is also a greater risk of getting sued by creditors during the program.
Will I Get Sued During a Debt Settlement Program?
A possible disadvantage of participating in a debt settlement program is the likelihood of getting sued by creditors. The frequency of lawsuits varies among creditors, with some being more likely to sue than others.
Alternatively, you can use our free lawsuit likelihood calculator to assess the potential risk of a lawsuit.
Should I Refile Bankruptcy After A Chapter 13 Dismissal?
Deciding to refile a bankruptcy after a Chapter 13 dismissal can be difficult. However, as difficult as it may be, certain circumstances make it the best option for you. If your income drops significantly after the dismissal of your Chapter 13, you may now qualify for a Chapter 7 bankruptcy. This type of bankruptcy requires passing the Chapter 7 means test, which assesses your financial situation to determine eligibility.
The Chapter 7 bankruptcy will provide you with a new start by eliminating your unsecured debts.
Duration of the Process of Dismissing a Chapter 13 Bankruptcy Matter
The time it takes to dismiss a Chapter 13 bankruptcy case can vary. A major dismissal needs to make payments under your payment plan. The trustee may file a motion to dismiss the case whenever this happens.
Although the process does not take long, it varies depending on the case’s specifics, such as the amount of debt, the complexity of the financial situation, and the cooperation of the parties involved. It’s important to remember that a dismissed Chapter 13 bankruptcy case does not eliminate debt and may result in a return to the pre-bankruptcy financial situation.
It’s best to consult with a bankruptcy attorney to understand the specifics of your case. They can provide some insight into the time frame given your case.
Responding to a Motion to Dismiss a Chapter 13 Bankruptcy
A debtor who receives a Motion to Dismiss a Chapter 13 bankruptcy case from the trustee has two potential courses of action. If the trustees’ motion is based on an incorrect assertion that the debtor has failed to make payments, the debtor may choose to defend their case by proving that the trustee is in error.
Alternatively, if the debtor recognizes the importance of making the payments and resolving the issue, they may proactively present a plan. The key is for the debtor to address the Motion to Dismiss promptly and effectively, demonstrating their commitment to successfully navigating the Chapter 13 bankruptcy process and achieving financial stability.
Creditors After Chapter 13 Dismissal Case
People often avoid voluntary dismissal because it can lead to lawsuits. Once a creditor sues you, settling the debt through negotiation may still be possible, but the amount of debt reduction may be limited.
However, it’s important to consider that voluntary dismissal of a case may give the impression of being financially stable and may make creditors more likely to take legal action in the future. It is advisable to make sound decisions when considering Chapter 13 dismissal.
How do Creditors know your Chapter 13 Bankruptcy Has Been Dismissed?
When filing for bankruptcy, you must provide a list of creditors to the court, which will notify them of your filing. This notification is usually done through a letter sent by the bankruptcy court clerk. The court notifies your creditors once you dismiss your Chapter 13 bankruptcy.
Do Creditors Start Collecting Immediately?
After creditors are notified of a Chapter 13 dismissal, they may begin collecting immediately. If you experience a sudden increase in calls from creditors, it’s wise to consider options for debt relief as they may pursue legal action.
If the reason to Dismiss Chapter 13 was due to a significant rise in income, you might have the option to start paying on the debts or pay them in full to prevent creditor collection. Note that the fees incurred during the Chapter 13 bankruptcy period can make the debt difficult to manage.
Conclusion
Due to the potential risks, dismissing a Chapter 13 bankruptcy case is a significant choice. It may, however, be the optimal solution after careful consideration. If you have further queries, contact us about ending your Chapter 13 case.