What Happens if My Chapter 13 Bankruptcy Plan is Dismissed Because I Can’t Afford the Payments?

The simple answer is that few plans should be dismissed for failure to make payments. In general, I can often secure a court order to reduce the payments and/or forgive accumulated payments. A qualified and caring Chapter 13 practitioner can and will ask the judge to “modify” the plan to meet your changed circumstances, if you make an appointment to come in and consult with us before it is too late.

A conversion to Chapter 7 bankruptcy may also be an option, or a filing a new Chapter 7 bankruptcy case after your Chapter 13 bankruptcy case is dismissed. In many cases, “straight bankruptcy”, also known as Chapter 7 bankruptcy, is preferable to long-term credit recovery.

James H. MaGee, Washington Bankruptcy Attorney

I am a qualified and caring Chapter 13 bankruptcy practitioner who can and will ask the judge to “modify” your plan to meet your changed circumstances. Make an appointment to come in and consult with us before it is too late.

Your Creditors Will Return if Your Chapter 13 Bankruptcy Plan is Dismissed

If your Chapter 13 bankruptcy plan is dismissed, either because it can’t be modified, or the modification to your Chapter 13 bankruptcy plan isn’t filed in time, eventually your creditors will return and start attempting to collect their respective debts again. Your creditors can collect again because no discharge of debts was issued since your Chapter 13 bankruptcy plan wasn’t completed.

Let’s Review Some Basics: What Is A Chapter 13 Plan?

A Chapter 13 bankruptcy plan is a “reorganization plan” where debtors make payments on their debts over a period of three to five years. Today, Chapter 13 cases are less common than Chapter 7 “straight bankruptcy” cases. In the Western Washington State area where I practice most of my cases, only about 20% of bankruptcy cases filed are Chapter 13 cases.

Higher income debtors are sometimes ineligible to file Chapter 7 bankruptcy, and must file for Chapter 13 bankruptcy in order to repay some portion of their debts. The amount of Chapter 13 bankruptcy plan payments is calculated by the application of a complex multi-page formula. I am very familiar with this formula and process, and I can help you estimate the amount of Chapter 13 bankruptcy plan payments you would be required to make in your specific circumstances.

Some lower-income debtors file a Chapter 13 case for one or more of these reasons:

  • Stop the foreclosure of your home, and catch up on missed house payments over time.
  • Reset payments with a car lender who is threatening to repossess your vehicle.
  • Repay your defaulted IRS taxes interest-free.
  • Restore your drivers’ license that was suspended for nonpayment of court fines and tickets.

Depending on income, many Chapter 13 bankruptcy cases propose to repay little if any general unsecured debts, including medical bills, defaulted obligations to landlords, and credit card debt.

Many debtors in Chapter 13 bankruptcy are good, hardworking folks who are struggling to get by financially. Some folks are “on the edge” financially, and some of their Chapter 13 bankruptcy plans do not complete. In those cases, their Chapter 13 bankruptcy plans are dismissed, and their creditors can restart collection calls and collection lawsuits against the debtors.

You Can Be Sued Once Your Bankruptcy Case Is Dismissed

A debtor who is fresh out of a failed Chapter 13 plan can be sued by creditors once their bankruptcy plan or case is dismissed when these conditions are met:

  • When the statute of limitations to file suit on a tort or breach of contract expires after the dismissal date of the Chapter 13 bankruptcy plan.
  • When the Chapter 13 plan is dismissed for the debtor’s default because of failure to make the Chapter 13 reorganization plan payments.

11 USC 108(c) (1) generally provides that bankruptcy does not interrupt the running of a statute of limitations. If the creditor had six years to file a lawsuit from the date of breach of contract, the six-year period is neither shortened nor extended by the bankruptcy as long as the Chapter 13 bankruptcy plan begins and then fails over a time period that is within that six-year statute of limitations to file suit.

An Example of the Six Year Statute Of Limitations to File Suit

Suppose that you are a debtor who breached a written contract with one of your creditors on August 1, 2009 and then after the creditor hounded you for a year, you the debtor filed Chapter 13 bankruptcy on September 1, 2010. The six-year statute of limitations to file suit to collect this debt starts on August 1, 2009. If your Chapter 13 bankruptcy case is dismissed without issuance of a discharge on September 1, 2014, due to defaults or failures in the Chapter 13 bankruptcy plan payments, the creditor still has a long time to file suit against you the debtor. The creditor can file suit as late as July 31, 2015 because the statute of limitations to file suit runs out on August 1, 2015, some six years after the breach of contract on August 1, 2009, and almost a year after the Chapter 13 bankruptcy case was dismissed for non-performance on September 1, 2014.

As we can see from the example above, the deadline to file suit to collect a debt is six years after the breach. The deadline is neither extended nor shortened due to the fact that the debtor was in bankruptcy during the six-year time period.

What Should You Do Today If Your Chapter 13 Plan Is Unaffordable or Your Circumstances Changed?

There is a lot that we can and will do to help you. Contact the Law Offices of James H. MaGee, Washington Bankruptcy Attorney today!