Chapter 13 bankruptcy can negatively affect your financial standing, including restarted collection calls and debt collector harassment. When your case is disbanded, it will appear on your record and may impact your credit score. While receiving a refund is possible, it’s crucial to weigh all your options before making a decision.
Most people cannot complete their Chapter 13 case due to high payments, job loss, illness, or economic difficulties. This article will examine the consequences of not finalizing a Chapter 13 plan, available alternative alternatives, and whether you can receive a refund upon dismissal. It’s crucial to clearly understand your options to make an informed choice and get out of debt effectively.
1 What is the Process of Obtaining a Refund in a Chapter 13 Bankruptcy Case?
The Chapter 13 custodian can acquire any remaining funds that have not been distributed to creditors. After dismissing a bankruptcy case, these funds will be returned to a debtor. Below are the steps you can follow to recover your funds if you still need to receive your reimbursement.
The process of obtaining the Chapter 13 refund involves the Chapter 13 custodian filing an audit with the court. This accounting must detail the use of the funds. Before returning any money to the defaulter, the court permits the trustee to subtract any service fees. It’s also important to note that receiving the refund after expulsion may take quite a long time.
Additionally, your bankruptcy advocate may claim a portion of the funds for due legal fees. An excise fee can also seize the refund. Once the automatic bankruptcy stay gets lifted, creditors can resume their efforts to collect on their debts.
2. Acknowledge Your Alternatives After the Chapter 13 Dismissal
Understanding your alternatives after Chapter 13 dismissal is essential, as this information could become a public record and be seen by debt collectors.
You have several alternatives for debt relief, including re-filing under Chapter 13 or Chapter 7. The automatic stay is not always effective. Therefore, you may need to file another proposal. There may also be a penance period during which creditors can continue to collect on their debt.
In some cases, a bankruptcy dismissal with prejudice can result in a compulsory waiting period before being able to re-apply for bankruptcy. With the proper guidance, you can regain control of your finances and move forward with a fresh start.
We have created a debt relief alternatives calculator to assist you after your Chapter 13 dismissal. This tool helps you compare the various options available to determine the best course of action. To help you make an informed decision, we’ll also provide some helpful additional information in the calculator.
How to Convert a Chapter 13 Dismissal to Chapter 7
You may have the alternative to do so before a bankruptcy dismissal. This type of bankruptcy offers a quick solution to erase debts. It’s, however, essential to be aware of the potential risks associated with transforming to Chapter 7.
One such risk is the loss of equity assets, as the Chapter 7 custodian could sell them unless a bankruptcy exemption protects them. Be sure to determine whether the loss of assets is worth the benefits of faster debt elimination. To learn more regarding the Chapter 7 bankruptcy process, you can refer to our overview, which provides detailed information on the process and what to expect.
3) Common Causes of Chapter 13 Expulsion
Chapter 13 bankruptcy is a voluntary repayment plan where the debtor can choose to discontinue at any time. Being in a wage earner’s plan, which can last up to 5 years, is a long-term commitment. During this period, life events can occur that may result in the need to dismiss the case. Some of the reasons for the Chapter 13 dismissal include the following:
- Voluntary Withdrawal —A wage earner’s plan is a voluntary repayment plan where the debtor can choose to discontinue at any time.
- Missed Payments in Chapter 13 — Missing payments can lead to Chapter 13 dismissal. Most bankruptcy lawyers plan the Chapter 13 payment with some buffer room for a 3-month suspension in case of financial difficulties. This plan must be approved by the Chapter 13 custodian and the bankruptcy judge.
- Failing to Appear at Court Hearings — Not attending required hearings, such as the 341 First Meeting of Creditors, can also result in dismissal.
- Incomplete Completion of Bankruptcy Courses — Failure to complete the required courses (Credit Counseling Course and Debtor Education course), filing all tax returns on time, submitting all bankruptcy forms, and providing necessary documents to the Chapter 13 custodian can result in bankruptcy plan dismissal.
- Not Filing Mandatory Tax Returns — Filing returns by the deadlines set by the court is crucial. Debtors who fail to file returns on time are subjected to Chapter 13 dismissal.
- Incomplete Filing of Bankruptcy Forms — Creditors should file and submit all bankruptcy forms on time. Failure to file all bankruptcy forms leads to Chapter 13 dismissal.
- Omission of Necessary Documents to the Chapter 13 Custodian — The Chapter 13 custodian requires some specific documents. Failing to handle the
Documents on time leads to dismissal.
- Meeting all deadlines set by the court or the Bankruptcy Code is essential in avoiding a bankruptcy case dismissal.
4) Chapter 13 Dismissal Consequences
The Chapter 13 reorganization of debts helps individuals with regular income pay off their debts over three to five years. A dismissal means the court has terminated the bankruptcy case before the individual has completed their payment plan.
The consequences of a wage earner’s plan dismissal are that the individual is still responsible for paying all their debts, just as before filing for bankruptcy.
Dismissal does not mean that the debts have been forgiven or discharged. Creditors can start collecting the debt once the case is banished. The means of collection may include phone calls, letters, debt collection lawsuits, wage garnishments, repossessions, and foreclosures.
Creditors must credit the individual for any payments they acquired from the Chapter 13 custodian during the time the case was pending. Note that a dismissal is not the same as a discharge of debt. A discharge is the legal release of an individual’s obligation to pay their debts, which occurs at the end of a successful Chapter 13 case.
When a case gets dismissed,
a discharge does not occur.
Seek Assistance in Choosing Between Debt Relief Alternatives
If you’ve had a bankruptcy case dismissed, it’s essential to understand your options for dealing with your debt before creditors start contacting you for collection. You can use the Chapter 13 expulsion options calculator to help you make an informed decision.
This calculator comprehensively analyzes your options, allowing you to estimate costs, compare the advantages and disadvantages, and decide which debt relief option is best for you.