Bankruptcy can be a complex and intimidating process, but it’s designed to offer people a path to regain their financial stability. Chapter 13 bankruptcy, which is often referred to as a “wage earner’s plan,” allows people with a regular income to create a plan that repays all or part of their debts. Under Chapter 13, people with overwhelming debt propose a repayment plan to make installments to pay back a percent of their debt over three to five years.
That said, Chapter 13 bankruptcies are not always successful. They take multiple years to complete, and the plans don’t always compensate for changing circumstances. This article will cover the basics of Chapter 13, but also what happens when they go wrong. We’ll talk about why these repayment plans get dismissed and what happens afterward so you can plan for what comes next.
If you’re dealing with overwhelming debt, Chapter 13 can offer you a simple way to manage your repayments while keeping your assets. At Grady BK, PLLC, in Central New York, we’re committed to guiding people through the complicated process of Chapter 13 bankruptcy. Our team, led by bankruptcy attorney Jessica Grady, is here to provide the support and legal expertise you need to navigate this process successfully the first time.
The Path of Chapter 13 Bankruptcy
When you finish a Chapter 13 bankruptcy plan, which can be between three to five years, you have paid back a percent of your unsecured debt and the rest is wiped away. Because you’re either debt-free or close to it (you likely would still have a mortgage and/or car payment), you won’t have the same financial stress hanging over your head. Completing the plan also puts you in a better spot to stay out of debt in the future. It’s not just designed to repay the debt you had. It also helps you learn to manage your money better so you don’t end up in the same situation ever again.
Getting through a Chapter 13 plan isn’t easy. It requires sticking to a budget, saving money for unexpected expenses, and making regular payments. Our experienced bankruptcy attorney can make a big difference by helping you set up a plan that works best for you. We will keep you informed about what you need to do and help you with any challenges that come up along the way.
When Your Chapter 13 Bankruptcy Case is Dismissed
When a Chapter 13 bankruptcy gets dismissed, the court declares your bankruptcy case is over without wiping out any of your debts. This can happen for a few reasons. You may have missed payments or ignored important paperwork. Your case could also be dismissed if you skipped a mandatory court date.
Getting dismissed is hard because it takes away the shield bankruptcy gives you from your creditors. This shield called the “automatic stay,” stops creditors from collecting against you or suing you while you’re in the bankruptcy process. Once your case is dismissed, that protection goes away, and creditors can start calling you again. They can also repossess your property or even kick off a foreclosure process if you’re behind on your mortgage. It’s a setback, but it’s not the end of the world. There are steps you can take to get back on track, even after your Chapter 13 bankruptcy is dismissed.
Strategies to Avoid Chapter 13 Dismissal
Staying ahead in the Chapter 13 bankruptcy process means being actively involved and making sure you’re meeting all the requirements. It involves consistently making your payments as agreed upon in your plan and communicating with your attorney whenever necessary. Falling behind on payments is the most common reason for dismissal, so it’s important to prioritize them. It’s also important to attend all required court hearings. These hearings are not just part of the process; they’re where you receive significant updates and decisions regarding your case.
Life After Bankruptcy Dismissal
A dismissal from Chapter 13 bankruptcy doesn’t mean the end of your journey towards financial recovery. There are several paths you can take to regain control over your finances. For some, re-filing for Chapter 13 might be the best step forward. This option allows you to propose a new repayment plan and address the reasons your first case was dismissed.
In New York, if your Chapter 13 bankruptcy case was dismissed, you generally have the option to file again immediately unless the court has specifically barred you from refiling for some reason. The court might do this if you fail to comply with court orders or if you voluntarily dismiss your case. In these instances, you might face a 180-day waiting period before you can refile for Chapter 13.
When you do refile after a dismissal, be aware that the automatic stay may be limited. If you refile within a year of your case being dismissed, the automatic stay will only last for 30 days unless your attorney can convince the court to extend it. If your case was dismissed twice within the past year, you might not receive the automatic stay benefit again at all.
Alternatively, Chapter 7 bankruptcy might be worth considering. Unlike Chapter 13, Chapter 7 involves discharging unsecured debts like credit cards, personal loans, and medical bills. You can still keep a lot of the same assets you would in Chapter 13, but Chapter 7 comes with a “means test” that disqualifies people who earn higher incomes.
The Role of the Bankruptcy Trustee
The bankruptcy trustee plays a critical role throughout your Chapter 13 process. They are responsible for overseeing the case, distributing payments to creditors, and ensuring overall compliance with the bankruptcy plan. The trustee is like the Judge of your case. They ensure all the rules are followed, and they dismiss the case if they are not.
A Compassionate Partner in Chapter 13 Bankruptcy
At Grady BK, PLLC, we understand the challenges and stress associated with debt. Our goal is to offer compassionate, experienced, and practical legal guidance to help you complete bankruptcy correctly the first time.
