If you miss Chapter 13 plan payments and the trustee files a motion to dismiss your case, you can oppose the motion or appeal the dismissal.
If you don't make your Chapter 13 plan payments, the bankruptcy trustee can ask the court to dismiss your case, ending your bankruptcy without a discharge and leaving you with your debts and without the automatic stay protection from creditors. You can often save your case by contacting the trustee early or opposing the motion, and you can appeal a dismissal if you act within 14 days. This article explains what the trustee does when you fall behind, how to fight a motion to dismiss, what happens if the court dismisses your case, and how to appeal. It also covers dismissal with prejudice, which can bar you from filing again for a set period.
What Happens If You Miss Chapter 13 Plan Payments?
If you miss plan payments, the trustee can file a motion asking the court to dismiss your case. 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 every payment you make. (11 U.S.C. § 1307(c).)
The trustee will typically work with you to help you avoid missing payments, or give you a little breathing room to catch up, before filing the motion. If the court dismisses your case without prejudice, you can usually refile right away. Just be aware that the automatic stay is limited if you file again within a year.
What If the Trustee Files a Motion to Dismiss Your Case?
You can oppose the motion, and you should. If you don't, the court will likely dismiss your bankruptcy without "discharging," or eliminating, your debts. If you know you'll miss payments, it's often easier to save your case by contacting your trustee right away. Most trustees have programs to help filers catch up.
The procedures for opposing a motion to dismiss depend on the local rules of the bankruptcy court where you filed. In general, the court will expect you to explain why you got behind and what has 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 covers your plan payment going forward. Or you missed payments because of an on-the-job injury, but now you've been released to return to work.
If you have a valid reason for falling behind temporarily, the court or trustee will often allow time to catch up. But if the court believes you can't afford your Chapter 13 plan, it can dismiss your case or convert it to Chapter 7. (11 U.S.C. § 1307(c).)
What Happens After Your Bankruptcy Case Is Dismissed?
When the court dismisses your case, you lose the benefits of bankruptcy and could end up worse off than before you filed. Three things happen right away.
Your debts won't be discharged. Your debts are discharged in Chapter 13 only when you complete your plan, which lasts three to five years. Everything you owed before you filed, you'll owe after, minus any plan payments you made. Creditors who didn't bother to file claims in your case stay with you, too, because those debts get discharged only if you finish the plan.
You lose the automatic stay. The automatic stay, which stops your creditors from collecting while you're in bankruptcy, ends. Your creditors can then take any collection action state and federal law allow, including filing a lawsuit, repossessing your car, foreclosing on your home, and garnishing your wages.
The court reverses changes it made to your debts. For instance, a Chapter 13 plan can lower the interest rate on a car loan and, if you bought the car more than 910 days before filing, reduce the loan to the value of the car. This is called a "cramdown." When the case is dismissed, the cramdown is reversed, minus any plan payments already made. Reversing it often puts the car loan in default, and you might find yourself behind.
Dismissal With and Without Prejudice
The court can dismiss your case with or without prejudice. Most dismissals are without prejudice, which lets you file again. A dismissal with prejudice can bar you from refiling for a set period.
|
Key Factor |
Dismissal Without Prejudice |
Dismissal With Prejudice |
|
How Common |
Most dismissals, including those for missed plan payments. |
Rare. Courts use it when a filer acted in bad faith or abused the bankruptcy process. |
|
Refiling |
You can usually refile right away, though the automatic stay might be limited if you file again within a year. |
The court can bar you from refiling for a set period, often 180 days. The court's order sets the exact terms. |
|
Debts From the Dismissed Case |
You can generally discharge them in a later bankruptcy. |
The court can order that you can't discharge them in a later case. |
Acting in bad faith or abusing the bankruptcy process can result in the court dismissing the case with prejudice. In many cases, the court won't allow you to refile for 180 days, but can set a longer period or other limits for cause. (11 U.S.C. §§ 109(g), 349(a).)
How to Appeal Dismissal of Your Chapter 13 Bankruptcy
To appeal a dismissal, you must file a notice of appeal within 14 days after the court enters the dismissal order, or ask the court for more time before the deadline. Courts strictly enforce this deadline, and missing it can end your appeal. (Fed. R. Bankr. P. 8002.)
You'll also need to file paperwork explaining why the court should grant the appeal, and you might need to argue your case at a hearing. Most cases require you to show that the bankruptcy court made a mistake in dismissing your case or that you have a compelling reason to overturn the dismissal. The appeal goes to the federal district court or a bankruptcy appellate panel.
Next Steps if You're Behind on Plan Payments
Contact your trustee and a bankruptcy lawyer as soon as you know you'll miss a payment. Appealing a dismissal can be very complex, so you'll typically want a bankruptcy attorney to guide you. Many offer a free first consultation. In the meantime, these articles might help:
In This Article