If you don't make your Chapter 13 bankruptcy monthly plan payments, the bankruptcy trustee will ask the court to dismiss your case. If the court does dismiss your Chapter 13 bankruptcy for nonpayment, you might be able to appeal the dismissal to a higher court. However, in most cases, you'll be able to work something out with the trustee before the case is dismissed or refile a new case after dismissal.
Below you can learn about your options if you cannot make your plan payments, what to do if the trustee files a motion to dismiss your case, and how to appeal if, in the rare instance, your case is dismissed and the court prohibits you from filing for some period (dismissal with prejudice.)
For more information on how the Chapter 13 repayment plan works, see our topic area on The Chapter 13 Repayment Plan.
If you want to continue with your Chapter 13 bankruptcy, you must make timely plan payments to the bankruptcy trustee every month. The trustee keeps a record of all payments you make during your bankruptcy. If you fail to make your plan payments, the trustee will file a motion with the court to dismiss your case.
If you know that you'll miss plan payments, it's often easier to save your case if you contact your trustee right away. Most trustees have programs in place to help bankruptcy filers get caught up when they encounter payment problems.
If the trustee files a motion to dismiss, you'll have a chance to review and oppose it. If you don't oppose the trustee's motion, the court will dismiss your bankruptcy without discharging (eliminating) your debts. But if your nonpayment was the result of a temporary setback and you want to continue with your bankruptcy, you can oppose the trustee's motion.
The procedures for opposing a motion to dismiss will depend on the rules of the bankruptcy court in which your case is filed. But in general, when you oppose the trustee's motion to dismiss, the court will expect you to explain why you got behind and what circumstances have changed that will allow you to make the rest of your plan payments.
For example, suppose you missed payments because you lost your job. Now you have a new job, and your pay is enough to cover your plan payment from here on out. Or, you missed payments because you suffered an injury on the job, but now you've been released to go back to work.
In most cases, if you have a valid reason that caused you to temporarily fall behind on your payments, the court or the trustee will work with you and allow you time to catch up on your missed payments. But if the court believes that you can't afford to continue with your Chapter 13 plan, it will dismiss your bankruptcy.
If the court dismisses your Chapter 13 bankruptcy, it can do so with or without prejudice. Most cases are dismissed without prejudice – meaning that you can file another bankruptcy case right away.
But if you acted in bad faith or otherwise abused the bankruptcy process, the court can dismiss your case with prejudice. If the court dismisses your bankruptcy with prejudice, you may not be able to file another bankruptcy for a specified amount of time (often six to twelve months) or discharge the debts included in your first filing. The exact terms of the dismissal will depend on the court's order.
For more detailed information, see What Does Dismissed With Prejudice Mean? and When Your Bankruptcy Case Is Dismissed Without Prejudice.
When your bankruptcy case is dismissed, you lose important benefits and could be left worse off than before you filed your Chapter 13 case.
Your debts will not be discharged. Your debts are discharged in a Chapter 13 only when you successfully complete your plan, which can last three to five years. Everything you owed before the bankruptcy, you'll owe after (except for amounts applied from any plan payments you did make.) Often creditors—especially unsecured creditors—don't bother to file claims with the bankruptcy court and their debts get discharged, but only if you complete the plan. When the case is dismissed, those creditors stay with you.
Any changes that the court made to the terms of a debt in your Chapter 13 case will be reversed. For instance, Chapter 13 plans in some cases can lower the interest rate on a car loan and reduce the principal amount to the value of the collateral. This is called a "cramdown" of the car loan. When the case is dismissed, the cramdown is reversed (minus any plan payments already made). Reversing the cramdown often puts the car loan into default. You could discover at dismissal that your loan payments are months behind.
You lose the automatic stay. The automatic stay, which prevents your creditors from taking collection actions against you while you're in bankruptcy, will no longer be in effect. Without the stay, your creditors will be free to take whatever collection actions are available to them under state and federal law, including filing a lawsuit, repossessing your car, foreclosing on your home mortgage, and garnishing your wages.
As we discussed, the court or the trustee will typically work with you to help you avoid missing payments, give you a little breathing room to catch up, or to resolve a motion to dismiss. Further, if your bankruptcy is dismissed without prejudice, you can refile your case immediately. Just be aware that bankruptcy tools, like the automatic stay, may be limited in new cases. See Exceptions to the Automatic Stay: Repeat Bankruptcy Filings. As a result, appealing a Chapter 13 bankruptcy dismissal is not a very common occurrence.
If you wish to appeal your dismissal, you must file a notice of appeal within 14 days after your case is dismissed (but you can also file a motion for an extension of time to appeal). In addition, you'll need to file other formal paperwork with the court (such as a legal brief), explaining why the court should grant the appeal. You might also have to appear at a hearing to argue your case to a judge.
In most cases, you'll have to show that the bankruptcy court made a mistake when it dismissed your case, or that you have a very compelling reason to overturn the dismissal. Because appealing a Chapter 13 bankruptcy dismissal can be very complex, you'll typically need an attorney to guide you through the process.