Absolute Right to Dismiss a Chapter 13 Bankruptcy Case
Chapter 13 Bankruptcy Is Not a Prison
While a Chapter 13 bankruptcy is a 3-5-year payment plan process in which you repay some of what you owe to your creditors, it is not a process that keeps you locked into a monthly payment premised upon the income and expenses you had when you filed if that income or those expenses change in that 3-5 year period.
Chapter 13 Bankruptcy: The Basic Process
A Chapter 13 bankruptcy is a flexible process. Initially, with your bankruptcy attorney, you propose a payment plan to the bankruptcy court and to the Chapter 13 Trustee that offers to repay some set amount or set percentage of what you owe to your creditors over 3-5 years, depending upon a variety of circumstances. The plan, especially in the Detroit, Michigan area, where I practice, is then examined or argued over by the Trustee for a number of months until, finally, the plan is confirmed by the Court. After Confirmation, the "arguing" part of your Chapter 13 is, for the most part, over, and you simply make your agreed-upon payments to the Chapter 13 Trustee for the next couple of years until you have made all of the payments your plan requires you to make and you receive your discharge. Unless something happens that threatens your ability to make those payments. It is rare that anyone's life or finances do not take an upturn or downturn at any point over a handful of years. The Chapter 13 payment plan is premised upon one's ability to make a set payment each and every month. If a downturn in income or a permanent increase in monthly expenses reduce the net available household income one has, the premise upon which a Chapter 13 plan has been constructed can be threatened.
Chapter 13 Bankruptcy: What Do You Do When Circumstances Change?
This is common enough that there are options available when this happens. First, you may propose a modification of your original Chapter 13 bankruptcy plan, reducing your payment by the amount of your reduced income or increased monthly household expenses. The Chapter 13 Trustee may or may not object to it or request some supporting documentation proving the change in circumstances, but---especially if all your monthly payments have been made in a timely manner up until this point---any issues the Trustee has can usually be worked out. Once the Trustee is happy, the judge in your case will usually sign an order modifying the plan. Second, you can convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy, in which your debt is simply discharged with no need to make a further monthly payment. This can be done at any time as a matter of course in a Chapter 13, with the simple filing of a notice of conversion with the bankruptcy court by your attorney. Of course, if you had filed the Chapter 13 originally because you made too much money to be eligible for a Chapter 7, the change in your circumstances must be permanent (i.e., job loss). Additionally, if you were filing the Chapter 13 with the hope of taking advantage of any of the advantages of the Chapter 13 process, such as stripping off and discharging the second mortgage on your home or paying an otherwise non-dischargeable tax debt off at 0% interest, you will be unable to continue taking advantage of these process in a Chapter 7 and will need to continue to deal with creditors in this light. Finally, you have a virtually absolute right to dismiss a Chapter 13 case at any time. Again, with the simple filing of a notice of dismissal. Dismissed a Chapter 13 case will leave exposed to your creditors with a need to become current or to work out a repayment plan with each of them individually, of course, to the extent that you have anything remaining owing to them after their receipt of any payments through the Chapter 13 plan prior to dismissal. If you have dismissed your case voluntarily, you will in all likelihood be unable to re-file either a new Chapter 13 or a Chapter 7, if you are now eligible for that form of bankruptcy, for 180 days from the date of the dismissal. Nevertheless, there are reasons when an individual might opt to dismiss a Chapter 13, even given all of this.
Can I Dismiss a Chapter 13 Bankruptcy: The Bottom Line
Unlike a Chapter 7 bankruptcy in which there is no voluntary right to dismiss (or to convert to a Chapter 13), a Chapter 13 is a flexible process that leaves you in control of the process and the timeline for the bankruptcy going forward. Given that, it is often preferable to Chapter 7, in which assets may be liquidated and the Chapter 7 Trustee otherwise remains in full control of the "bankruptcy estate" that is creating upon filing of the bankruptcy petition, including all assets and claims you may have had prior to filing. Lack of liquidation of assets in addition to the right to convert or dismiss your Chapter 13 mean that Chapter 13 is often the safest bankruptcy road to travel. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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