Earlier this week, I wrote a post entitled Should I Oppose the Chapter 13 Trustee’s Motion to Dismiss. In that post I spoke about the relatively common scenario whereby a Chapter 13 debtor will fall behind on payments to the trustee or an unexpected claim will cause the plan to run longer than 60 months. In such a case, the trustee will file a motion to dismiss and the debtor and counsel will have an opportunity to propose a cure to the delinquency. Usually this cure takes the form of a lump sum payment immediately with the remaining delinquency paid to the trustee over time.
What happens if the proposed cure is not feasible for the debtor? In such a case, the judge would sustain the trustee’s motion to dismiss or the debtor would not oppose the motion. Either way, the debtor’s Chapter 13 case will be dismissed.
When a Chapter 13 case is dismissed, creditors can immediately pursue all non-bankruptcy alternatives. If there is a home and mortgage delinquency involved, the mortgage lender can start foreclosure proceedings. If there is a car payment involved, the car lender can immediately start the repossession process. Credit card lenders can restart collection efforts including calls and letters.
More importantly creditor claims go back to their pre-bankruptcy status. If, for example your Chapter 13 plan called for a payment amounting to 5 cents on the dollar to unsecured creditors, a dismissal would give those unsecured creditors the right to pursue 100% of balances due + interest.
The law does allow a debtor to refile Chapter 13, but there are strings attached. In a refiled case the automatic stay (the core protection of bankruptcy) would only last 30 days – your attorney would need to file a special motion asking the judge to keep the stay in effect beyond 30 days.
Generally, if case #1 was dismissed because of circumstances beyond the debtor’s control – i.e. a job loss or illness – judges will be amenable to extending the stay and eventually approving a 2nd plan. However, 2nd cases are inherently looked at with suspicion by Chapter 13 trustees.