Chapter 13 Bankruptcy Case Dismissals

Chapter 13 Bankruptcy Case Dismissals

A Chapter 13 bankruptcy, also known as a wage earner’s plan, allows a Debtor to catch up on mortgage payments and manage debts such as taxes, student loans, and even child support. A Chapter 13 will do this at the expense of unsecured debts like credit cards and medical bills which are paid only a percentage with no interest.

Three factors will control how much the payment is. First Secured property that is retained and priority debts must be repaid in full. Second, if your property exceeds the property exemptions your payments will be increased. Finally, the plan must repay all of your disposable income. To make the plan work you will want to value assets at liquidation value, and include all of your necessary expenses. You may also reduce income if you want to file a Chapter 7 or have low Chapter 13 payments.

Common Reasons for Chapter 13 Bankruptcy Case Dismissals

Filing for Chapter 13 bankruptcy offers debtors a lifeline by restructuring most debts and setting up a manageable repayment plan. However, cases can be dismissed for various reasons, including violating the rules. Understanding these reasons can help to navigate or even prevent potential pitfalls.

Failure to produce Documentation

One of the primary reasons for the dismissal of a Chapter 13 bankruptcy case is the failure to provide adequate documentation. When filing for bankruptcy, debtors must submit comprehensive financial records within 20 days of filing that detail all aspects of their economic situation. Whether you file a Chapter 7 or Chapter 13 these records are used to prove your financial picture. Fail to produce the records or co-operate with the Trustee and Judge and you make their job impossible and your case is dismissed. These records include, but are not limited to:

  1. Evidence of income (pay stubs, profit and loss statements, etc.)
  2. Titles for cars and boats, and the deed and mortgage documents for any real estate in your name. You will supply a list of assets
  3. A Detailed budget.
  4. A list of liabilities and assets.
  5. A list of about 26 questions must also be answered in detail in the schedule of allowed claims.
  6. Tax returns from the past two years.

If required documents are missing or incorrectly filled out, the court cannot accurately assess the debtor’s financial situation, leading to dismissal. Moreover, if the trustee suspects fraud or misrepresentation, this can result in a dismissal. It’s crucial for debtors to double-check their documentation and work closely with their attorney to ensure completeness and accuracy.

Failure to Make Plan Payments

A frequent cause for dismissal is the failure to pay plan payments. Once the bankruptcy court confirms a Chapter 13 plan, the debtor must make regular payments to a trustee, who then distributes these funds to creditors. Missing plan payments will cause the case to be dismissed. If the case is dismissed, you may not be able to file a second or third case. The home will often proceed back to a foreclosure sale in state court if you filed a Chapter 13 to stop a foreclosure. The rule that governs repeat filing is 11 USC 109(g). If you file too often, or in bad faith not intending to make payments, the court may ban you from refiling in bankruptcy court. Defaulting on the repayment plan agreement means:

  1. You lose the protection from creditors (creditors may resume collection actions, including foreclosure and lawsuits)
  2. Eventual dismissal of the bankruptcy case and going back to state court where you will often lose property or be subject to wage, bank, and property garnishments and judgment liens.

Failing to make mortgage payments will often result in increased costs from court costs and attorney fees. If the mortgage lender files a motion to terminate the stay because you are not paying the monthly mortgage, it will often cost between 1000 and 2000. Add to that, you will also be required to catch up on the missed mortgage payments or return to foreclosure court.

Continued financial hardship, unexpected expenses, or income reduction can derail a debtor’s ability to keep up with plan payments. If you have problems, see us early about a plan modification instead of facing dismissal. About 60 to 70% of Chapter 13 cases are dismissed because people do not make plan or mortgage payments on time after the case is filed.

Failure to Follow Local Rules

The bankruptcy rules are similar in every jurisdiction. But unless you practice in the local jurisdiction for years you don’t know the judges and the local rules. In the Western District of Kentucky, we are required to turn in an annual budget and turn over your tax refund. Many other jurisdictions have this rule, and some do not. As a result, even an experienced attorney can make a mistake that will cost a debtor a home by not following local rules. This can include the failure to use a non-standard plan form. Eastern Kentucky uses a local Chapter 13 plan form instead of a national form, and using the wrong form may cause a case to be dismissed. You better get this right the first time because a mistake can be lethal.

Failure to turn over tax refunds.

A Debtor is held to the same standards that the judge expects from an attorney with 25 years of experience. Do not think that your case will not be dismissed because you are a widow with 12 children. If you fail to follow the rules, your case will be dismissed. Bankruptcy judges are paid about 200,000 annually, and their contracts are renewed. The bankruptcy court judges have no choice but to follow the rules.

In the Western District of Kentucky, you are allowed to deduct the costs of having your return prepared from your tax refund. You cannot keep the child credit, but you can keep the earned income credit.

By filing the budget, your plan payments may increase or decrease. But it is rare that your payment will change at all. Most budgets will not vary very much from when you filed the case. Income will increase a little, but costs will also increase a little. If the disposable income stays the same, the plan payment will tend to stay the same. Your plan payments are actually more likely to go down than up.

Legal Implications of Chapter 13 Bankruptcy Dismissals

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Understanding the consequences of a Chapter 13 dismissal. Dismissal affects not only the debtor’s immediate financial situation but your future economic stability as well.

Impact on Credit Score

Finishing a bankruptcy causes accounts to be listed as paid as agreed or account closed on your credit report. They are not reported as delinquent. Filing a Chapter 13 bankruptcy initially affects one’s credit score. Any bankruptcy reflects significant financial distress. Many people, however, are able to buy a home or car during the case. I have seen FICO scores increase because payments were made on time after filing. However, a dismissal will make matters worse. After dismissal:

The credit report will reflect the filing and dismissal of the bankruptcy. You will return to owing any creditor, and you will often be further behind than when the bankruptcy case was filed.

– Dismissed cases remove the automatic stay, allowing creditors to report delayed payments, foreclosures, and repossessions. The return to being able to collect.

These entries on a credit report normally severely decrease a credit score, making it difficult to secure loans, refinance existing debts, or obtain favorable interest rates in the future. Such impacts can linger, as the bankruptcy filing remains on the credit report for seven years, irrespective of the dismissal.

Potential Loss of Assets

One of the benefits of the Chapter 13 bankruptcy stay is the protection it offers regarding the debtor’s assets. The stay is a bankruptcy court order that allows debtors to keep their property while repaying creditors under a court-approved plan. However, if the case is dismissed:

– Assets that were protected under the bankruptcy, like homes or cars, become at risk of foreclosure or repossession.

– Debtors also lose the legal protection that prevents creditors from suing, garnishing, and attaching personal and real property. After a creditor wins a lawsuit they normally collect through judgment liens, or wage or bank garnishments.

Securing legal advice immediately after a dismissal might provide options like filing an emergency petition to reinstate the automatic stay temporarily or exploring other forms of bankruptcy protection.

Future Filing Restrictions

A dismissal affects the present and future ability to use bankruptcy as a debt resolution tool. Post-dismissal, debtors face several restrictions if choosing to file again, which include:

– Waiting periods: Debtors may need to wait 180 days after dismissal to refile a bankruptcy case if the dismissal was due to failure to obey court orders, or to appear in court under 11 USC 109(g).

– Additional scrutiny: Subsequent filings might be scrutinized more closely, leading to the presumption of bad faith or abuse, which can even bar a debtor from filing another bankruptcy for years. Obtaining bankruptcy protection later may be harder, more complex, or impossible.

The stay is the temporary court order that protects you during the case. Obtaining, automatic stays for repeat filers could be limited or impossible, depending on the number of cases filed within a certain period. Repeat filings reduce the protections a debtor can have and can reduce you to begging for protection.

If you must miss Chapter 13 payments or refile, strategize with your attorney to mitigate the risks of dismissals and their far-reaching effects. You may be able to avoid the penalties completely by amending the plan or order of confirmation.

Strategies to Prevent Chapter 13 Bankruptcy Case Dismissals

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Understanding how to navigate the complexities of a Chapter 13 bankruptcy can significantly help in avoiding case dismissals. Employing strategic approaches throughout the bankruptcy process can protect your interests and ensure completion of the bankruptcy plan.

Consultation with Bankruptcy Attorney

An attorney helps in creating a reliable and feasible repayment plan. The plan is similar to a contract that cannot be broken but can be modified. Often, creditors and the judge will not object to a modification that is reasonable. But any plan must obey some rules that are central to the Chapter 13 process. A plan must be:

  1. repay the disposable income and be feasible,
  2. Provide for secured and priority debts and
  3. repay as much as a Chapter 7 would have.

A good attorney will prepare the petition and plan well, ensuring your plan is workable and correct. But he often cannot cure it when the debtor is non-compliant with procedural requirements. If you cant stay in the Chapter 13 and afford the payments an attorney can explain how:

  1. The automatic stay provisions before and after case dismissal,
  2. Managing bankruptcy exemptions,
  3. Ensuring all creditor claims are legitimate and properly provided for or objected to.

All of which can affect the success of a Chapter 13 case. A bankruptcy attorney acts not just as a guide but also advocate on your behalf to creditors and the court.

Working with Chapter 13 Trustees

The trustee is responsible for overseeing your case and ensuring that you adhere to the repayment plan. He makes the distributions to creditors and he is paid about 4.5 to 5% of the funds paid through his office. If the plan is not timely paid he is the one who files the motion to dismiss your case. Trustees primarily work for the creditors. A Chapter 7 trustee is paid about 25% of any property he sells for the benefit of creditors. Trustees do not work for you but will often work with your attorney to ensure the case is processed correctly.

Immediately inform your attorney about any changes in your financial situation. Changes such as a decrease or increase in income, a new debt, or an unexpected expense impacts your ability to meet the repayment terms of your plan. It may be possible to suspend plan payments or lower them temporarily. By keeping your attorney and the trustee informed and engaging respectfully and promptly, you demonstrate a commitment to adhere to the plan’s terms, thereby creating a favorable view of your effort to comply.

Adjusting the Repayment Plan

The Chapter 13 repayment plan is designed to accommodate changes in your financial circumstances during the period of the plan (which in Western Kentucky is almost always five years). If you have a job loss or medical crisis, adjusting your plan can help you continue making payments at a rate you can afford. Modifications beep you on track without risking dismissal. Initiating a modification often requires:

  • Preparing a new budget to determine the necessary adjustments.
  • Proposing these adjustments to the trustee and court for approval in a motion and order.
  • Demonstrating the circumstances leading to the adjustment are substantial and beyond your control and
  • Showing the changes are necessary and are not elective.

Adjustments might include extending the duration of the plan, reducing the payment amounts, or postponing payments for a period. This level of adjustment helps ensure that you can continue to work towards a successful conclusion of your bankruptcy despite financial setbacks. However, the plan cannot be extended past 60 months, and postponed payments have to be caught up.

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