Chapter 13 cases can be dismissed following confirmation while they are pending. Normally this step is taken by the Chapter 13 trustee himself. When he does money is the issue. For some reason you have might failed to make plan payments when due. Commonly it happens if you or your spouse loses a job or is laid off. No pay, no wage order, no money going to the court. Your Chapter 13 trustee works for your unsecured creditors. Not paying him, he’s not paying them. Based on claims filed there might even be a determination by the trustee that your plan can not be completed in 60 months. This is called lack of feasibility
If you are self employed, and this is very common for truck drivers, The United States government may move to dismiss your case for failure to file your taxes to pay taxes when due while in the plan, or a combination of both. The chapter 13 trustee makes sure you have every dime possible committed to the plan, and then the government boots you out because there isn’t enough left to pay your taxes.
I recently had a case where an owner operator truck driver paid off a 100% plan which included tens of thousands of dollars paid to the IRS. Weeks before his discharge the government filed to dismiss the case because he didn’t, more appropriately couldn’t, pay his income tax for the past year. It didn’t matter to the court that he paid everyone in full including his past tax debt to the IRS. Case Dismissed. His advantage is that just about all his creditors participated in the case, and they were paid in full as well.
In another case the person has a very large tax bill to the IRS. To stop a foreclosure he cashed out his 401k. He wasn’t my client at the time he did this, bad idea. The bank foreclosing on his home would not disclose the extent of his current mortgage arrearage. They just wanted to foreclose. He filed chapter 13. His plan confirmed. He sent the 401k money to the trustee as a lump sum payment. Chapter 13 trustee sent the money to pay off the IRS, and kept his fee. He then promptly filed a motion to dismiss for lack of a feasible plan. Funny, it was feasible up to the time the government got paid!
So the case is dismissed, what now? You basically go back to square one with your creditors.
- All of the interest charges that did not accrue, late fees and over limit fees frozen during the chapter 13 are added back to your accounts.
- Of course you get credit for what was paid by the chapter 13 trustee, but if the credit cards were getting pennies on the dollar you are way behind now.
- Lawsuits will pick up from where they were when the chapter 13 bankruptcy filing stopped them including foreclosure cases.
- The collection calls start again.
- Ultimately the collection calls turn into lawsuits.
- Lawsuits turn into judgments
- Judgments become garnishments, judicial liens, and bank attachments
- You may be in big trouble with your car loan. If there was a cram down, the trustee may have been paying much less than was due on the original note. The repo man is waiting for the call, or may be following you when you drive, waiting for his chance.
Are you experiencing collection activity following dismissal of a chapter 13? Leave a comment to talk about it!