A Chapter 13 bankruptcy allows you to develop a debt repayment plan based on your income with the help of a trustee who is assigned to your case by the bankruptcy court. Unsecured debt, like credit card debt, is frequently dismissed or reduced to pennies on the dollar, leaving you with smaller payments so more of your money can go toward your secured debts, like those for your home or vehicle. The debt repayment plan will be set up for three to five years.
Dismissing a Chapter 13 Bankruptcy
A Chapter 13 bankruptcy can be dismissed if you fail to pay the bankruptcy filing fees, fail to make the payments outlined in the debt repayment plan you filed or if you choose to dismiss your Chapter 13 bankruptcy -- say, if you want to convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy for complete liquidation of assets.
Reasons for Dismissal
In some cases, you may want to dismiss your Chapter 13 bankruptcy. For instance, if you are paying your creditors back 100 percent under your debt repayment plan, you can repay your creditors early, thus effectively dismissing your Chapter 13 bankruptcy. Alternatively, you could come into enough money that you find the bankruptcy is no longer necessary, such as through a windfall (e.g. inheritance, lawsuit damages, lottery winnings) or you get a higher-paying job.
What Happens to your Payments
If you dismiss the Chapter 13 before your debt repayment plan begins, no money is exchanged, so there is no loss except the loss of your filing fee. Your debts will continue to be owed as they were before you filed for bankruptcy. However, if you have already started making payments, your creditors can keep any amounts you have already paid them. You will be reimbursed any amount that your trustee had not yet portioned out to your creditors, minus various fees for fund administration.
Consequences of Bankruptcy Dismissal
When your Chapter 13 bankruptcy is dismissed for any reason, unless it is due to your repayment of your creditors in full or you decide to convert your Chapter 13 to a Chapter 7 bankruptcy, you will become immediately liable for all of your debts and will no longer be under the protection of bankruptcy proceedings. This means that your creditors will be able to pursue legal action, suing you or garnishing your wages. You will also become liable for the full amount of your debts, even those that were discharged by the bankruptcy judge.