When you file a Chapter 13 bankruptcy, you’ll create a three- to five-year repayment plan for your debts. One of the unique features of this chapter’s payment plan is that it gives you time to catch up on past-due house and car payments while letting you repay only a portion of other debts like credit cards and medical bills. If, however, you fall behind on your plan payment, the trustee can ask the court to dismiss your case. To save your case from dismissal, you’ll want to act quickly by objecting to the trustee’s motion.
(If you’d like background information, you’ll find the basics in Chapter 13 Bankruptcy.)
The first thing you’ll want to do after receiving a motion to dismiss is to read it carefully. The motion will tell you why the trustee is asking the court to dismiss your case—it’s likely that it will be for nonpayment. It will also explain when you must file a response—you usually have 21 days. It’s important to respond within that time and ask for a hearing.
In your response, you’ll want to explain why the trustee is incorrect and provide proof of the same. For instance, if your employer took the plan payment out of your paycheck but the trustee didn’t receive it, you would attach copies of your paycheck stubs showing the deduction. Or, if you mailed a check and the trustee cashed it, you’d attach a copy of the canceled check to your response.
Instead, if the trustee is correct, you’ll want to explain how you intend to fix the problem. For instance, you might be behind on your payments because you changed jobs and the new wage order did not start right away. Or perhaps you didn’t have the money to pay because you missed work due to an injury or illness.
If you have a compelling reason and can show that you’ll be able to make the payments in the future, the trustee will usually work with you to reach an agreement that will let you stay in your Chapter 13 case.
Here are additional ways to approach a Chapter 13 motion to dismiss.
If you can’t afford your Chapter 13 payment because of a change in circumstances, you should contact your attorney. You might be able to modify your repayment plan and pay a lower monthly payment.
You’ll have to file papers and provide documentation that proves the change in circumstances to stay in your case. Keep in mind that plan rules require you to pay many bills in full, such as your mortgage payment, certain taxes, and support arrearages. If your income drops to the extent that you can’t make minimum mandatory payments, a modification won’t be available.
(For more information, read Options if You Can't Make Your Chapter 13 Plan Payments.)
Depending on how long you’ve been in your case, you might be able to ask the court for an early hardship discharge. You must be able to show a number of things, including that:
Your attorney will need to file a motion asking for the hardship discharge and provide proof to the court. Hardship discharges are relatively rare, but it might be a possibility in limited circumstances.
(Find out more by reading Getting a Chapter 13 Hardship Discharge.)
If you and your attorney decide that you can’t afford to make your plan payments, you can convert your case to a Chapter 7 bankruptcy. You will have to show that your income is low enough to qualify for Chapter 7 bankruptcy by passing the means test.
Another tricky part about converting to a Chapter 7 case is that you might lose your nonexempt assets (the property you can’t protect with a bankruptcy exemption) to the Chapter 7 trustee. Also, if you’re still behind on a house or car payment, you’ll have to make arrangements with those creditors to keep those assets. Otherwise, you could face a foreclosure or repossession.
If you decide that its best to get out of the Chapter 13 case, you can simply do nothing. This approach can be appropriate if your financial situation has changed dramatically or if there are reasons that you can’t convert to a Chapter 7 bankruptcy.
Usually, the court will dismiss the case without prejudice (which means you can immediately file again). If the court thinks that you abused the bankruptcy process or acted in bad faith, the court can dismiss your case with prejudice. You won’t be able to file until the period spelled out in the dismissal order elapses.
Once dismissed, it’s as if you never filed bankruptcy. You’ll lose the protection of the automatic stay—the order that prevented your creditors from trying to collect their debts from you while you were in your bankruptcy case. Your creditors will be able to start garnishing your wages, attaching your bank accounts and putting liens on your property.
If your case gets dismissed without prejudice, you can file again and start the Chapter 13 process over, or file a Chapter 7 bankruptcy if you qualify. Keep in mind that if you file within a year of the dismissal, the automatic stay will expire after 30 days and your attorney will have to ask the court to extend it in the new case.