Families and individuals all over the State of Maryland file Chapter 13 bankruptcy for many different reasons. Chapter 13 bankruptcy can stop a foreclosure and allow the person filing for bankruptcy to pay back what they owe on the mortgage over the course of 3 to 5 years. Chapter 13 can also be used to pay pennies on the dollar for certain kinds of debt, and it can restructure secured loans such as car loans, home equity lines of credit and other liens on real property. However, there may be many reasons why a Chapter 13 involuntary dismissal can occur.
What Does Chapter 13 Involuntary Dismissal Mean?
Chapter 13 involuntary dismissal means that a Chapter 13 bankruptcy case is dismissed by the Court at the request of someone other than the bankruptcy filer. For example, if the bankruptcy filer is unable to pay their Chapter 13 plan payments, the Chapter 13 Trustee will likely ask the Court to dismiss the Chapter 13 case. If the bankruptcy filer does not abide by Court orders or does not appear for required hearings, their case is also subject to Chapter 13 involuntary dismissal.
Another example of Chapter 13 involuntary dismissal is in the case of a bankruptcy filer who filed Chapter 13 bankruptcy to stop a foreclosure and pay back the arrears on their home. In order to keep the home, the bankruptcy filer must make their regular mortgage payments in addition to their Chapter 13 plan payments. If the bankruptcy filer loses their job for a long period of time and misses their mortgage payments, the mortgage lender has the right to request that the Court lift the automatic stay, which, if allowed, will permit the lender to continue collection against the home such as foreclosure. Also, as explained, if Chapter 13 plan payments are missed, the Chapter 13 trustee has the right to ask the Court to dismiss the Chapter 13 case. In this circumstance, Chapter 13 involuntarily dismissal can occur.
How Does Chapter 13 Work?
In order to better understand why Chapter 13 bankruptcy involuntary dismissal can happen, it is important to understand the basics of Chapter 13 bankruptcy. A Chapter 13 bankruptcy can be filed by someone who earns too much to file Chapter 7 but wishes to address their debt, someone who wishes to stop a foreclosure on their home and to pay back the arrears over time, or for many other reasons.
Once a Chapter 13 bankruptcy is filed, the automatic stay generally takes effect, which prohibits all collection activity against the person or couple filing for bankruptcy, including lawsuits, wage garnishments, bank account garnishments, freezing bank accounts, foreclosure, repossession, levies and most other types of collection activity. The automatic stay gives the bankruptcy filer breathing room so that they can reorganize their debts through a Chapter 13 plan of reorganization.
Usually, a Chapter 13 repayment plan is filed with the bankruptcy case, and provides for how different kinds of creditors should be paid, such as mortgage arrears, car payments, tax debt, child support or alimony arrears, car arrears, and credit cards and personal loans. The Chapter 13 plan provides for monthly payments over the course of generally 3 to 5 years to a Chapter 13 Trustee, who, amongst other duties, is entrusted with distributing the funds in accordance with the confirmed Chapter 13 plan. In many cases, the bankruptcy filer can pay their unsecured debts, such as credit cards and personal loans, pennies on the dollar, making Chapter 13 bankruptcy a very useful tool to resolve many different kinds of debt. Most often, the goal of Chapter 13 bankruptcy is to maintain the Chapter 13 case so that no Chapter 13 involuntary dismissal occurs.
Chapter 13 Plan Confirmation
An important goal of many people who file for Chapter 13 bankruptcy is to have their Chapter 13 plan confirmed by the Court, which means that the Chapter 13 is now binding upon the bankruptcy filer’s creditors and acts to restructure debt. In order for a Chapter 13 plan to be confirmed, the plan must meet the various requirements of the Bankruptcy Code, all objections should be resolved, and all claims that must be paid into the plan are addressed and adequately funded with the Chapter 13 plan payments.
However, if a Chapter 13 plan cannot be confirmed, the Chapter 13 case can be subject to involuntary dismissal. There are many reasons why a Chapter 13 plan may not be confirmed. If the bankruptcy filer has not made their plan payments, not filed all required taxes for the past 4 years, is found to have fraudulently lied to creditors, or proven that the case was filed in bad faith, the plan may not be confirmed. If the Chapter 13 plan cannot be confirmed, in many cases, there is little benefit to keep the Chapter 13 case going, and it can be subject to involuntary dismissal for any of these reasons.
A Lot Can Happen Over 3 to 5 Years.
If a Chapter 13 plan is confirmed by the Court, Chapter 13 involuntary dismissal can occur as a lot can happen over the course of a 3 to 5 year payment plan. Take a couple who filed for bankruptcy together and 2 years into the plan, decide to get divorced. The divorce can significantly impact the Chapter 13 plan of both spouses, and if they do not agree to make the Chapter 13 plan payment, the case can be subject to a Motion to Dismiss filed by the Chapter 13 trustee to have the case involuntarily dismissed. Or, if a person in a Chapter 13 plan loses a job, gets into a car accident, or suddenly gets ill and can no longer afford their Chapter 13 plan payments, the Chapter 13 trustee can similarly ask the Court for the case to be involuntarily dismissed.
Additionally, in Baltimore, Maryland, the Baltimore Office of the United States Trustee can ask the Court to make the case subject to involuntary dismissal for many different reasons. Furthermore, creditors may also ask the Court to involuntarily dismiss the Chapter 13 case for different reasons as well. In all of these circumstances, the Chapter 13 case could be at risk to be subject to involuntary dismissal.
Chapter 13 Requires Court Approval For Certain Transactions
In several situations, before the bankruptcy filer can take action in a Chapter 13 bankruptcy, they must seek Court or Trustee approval. Approval is required, for example, before purchasing a car or taking out credit, selling real property, refinancing a mortgage, entering into a loan modification, hiring additional professionals to assist the bankruptcy filer with their case, and to approve settlements or other compromises of controversy. Sometimes, a bankruptcy filer may not wish to seek this approval. If the filer takes any of these actions without prior Court approval, a Chapter 13 involuntary dismissal can occur.
What Can I Do If Chapter 13 Involuntary Dismissal Happens?
All is not lost when a Chapter 13 involuntary dismissal happens. Another Chapter 13 bankruptcy can be filed to fix the problems that arose in the first case. However, there may be limitations and additional hurdles the bankruptcy filer must overcome when filing a second case. If one Chapter 13 case was dismissed and a second Chapter 13 is filed within a year after dismissal of the first case, the automatic stay only lasts for 30 days, unless the filer meets the burden to convince the Court to extend the stay. If 2 or more cases have been dismissed within a year before filing the next Chapter 13 case, the automatic stay does not take effect at all, and the filer must request that the Court impose the automatic stay.
However, if the bankruptcy filer’s Chapter 13 case was involuntarily dismissed by the Court for a willful failure to abide by Court orders, or because of failure to appear before the Court at required hearings or other failure to prosecute the case, the filer will not be able to re-file for bankruptcy until 180 days have passed.
If you have questions about Chapter 13 involuntary dismissal and bankruptcy, please schedule a risk free consultation or contact Steiner Law Group, LLC a Baltimore, Maryland law firm at (410) 670-7060 to learn more about bankruptcy options.