Why Chapter 13 Bankruptcy Cases Get Dismissed So Often

Chapter 13 bankruptcy cases get dismissed for lots of different reasons. Most dismissals, however, can be avoided.

Why Chapter 13 Bankruptcy Cases Get Dismissed So Often -- LEE LEGAL -- Chapter 13 Bankruptcy Lawyer DC VA MD

Chapter 13 is complicated

Obtaining trustee and creditor consensus on a court-approved repayment plan takes hard work, finesse, and expertise. Chapter 13 allows a debtor to propose several plans in an attempt to reorganize. But unnecessary delay will lead to dismissal. Failure to comply with local rules and procedure will lead to dismissal. And a single missed deadline in your case will lead to dismissal. Unfortunately, Chapter 13 bankruptcy administration is extremely complicated.

Pro se cases have very low success rates

A recent American Bankruptcy Institute study found that the pro se Chapter 13 success rate is no more than 14.8 percent. In contrast, filing with an attorney jumps the success rate up to 52.7 percent. Courts dismiss most pro se Chapter 13 cases within a few months. Even for those cases that somehow survive, the debtor likely leaves a lot of money on the table. The job of your Chapter 13 lawyer is to assist you in fashioning an effective reorganization. That includes making your monthly payment as affordable as possible based on your personal circumstances.

Chapter 13 requires tons of documentation

Not providing documents to the trustee can lead to dismissal very early in a case. You must present your Social Security card and government-issued photo ID at your meeting of creditors. The trustee will move to dismiss your case if you show up without these.

You must also have filed your state and federal tax returns for all years prior to your Chapter 13 filing. In addition to your petition and schedules, you must provide the trustee your tax returns for every year, going forward, that you remain in Chapter 13. To avoid a motion to dismiss from the trustee, you must send these returns directly to the trustee every year. Via your attorney, you must also provide the trustee with deeds of trust, leases, proof of income, bank statements, loan documents, in addition to other documents.

You must stay current on your Plan payments

You must begin to fund your Chapter 13 Plan immediately upon the filing of your case. Payroll deductions do not commence until confirmation, which can take months from the filing. You must send your plan payment directly to the trustee until automatic deductions start. After two months of nonpayment, the trustee will file a motion to dismiss your case for failure to make Chapter 13 plan payments.

Sometimes, voluntary dismissal is appropriate

Chapter 13 debtors have the absolute right to voluntarily dismiss their cases. Voluntary dismissal takes place for several reasons, but most often this takes place because the debtor obtains a mortgage modification. If you file a Chapter 13 solely to cure mortgage arrearage and subsequently obtain a loan modification, then you may no longer need the bankruptcy. At that point, voluntary dismissal may be appropriate.

Chapter 13 bankruptcy cases get dismissed — a lot

Over the course of three to five years, many different types of financial setbacks can occur. And while any serious setback can lead to dismissal, oftentimes dismissal can be avoided. If your circumstances change during the course of your Chapter 13 bankruptcy, notify your attorney as soon as possible. In many cases, your bankruptcy lawyer can do something to mitigate the problem.

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