My Chapter 13 Bankruptcy Was Dismissed for Nonpayment. Should I Appeal?

If you don't make your Chapter 13 bankruptcy monthly plan payments, the bankruptcy trustee will ask the court to dismiss your case. If the court does dismiss your Chapter 13 bankruptcy for nonpayment, you might be able to appeal the dismissal to a higher court. However, in most cases, you'll be able to work something out with the trustee before the case is dismissed or refile a new case after dismissal.

Below, you can learn about your options if you cannot make your plan payments and what to do if the trustee files a motion to dismiss your case. You'll also learn how to appeal if, in the rare instance, your case is dismissed and the court prohibits you from filing for some period (dismissal with prejudice.) Find out more about the Chapter 13 repayment plan.

What Happens If You Don't Make Your Chapter 13 Plan Payments?

If you want to continue with your Chapter 13 bankruptcy, you must make timely plan payments to the bankruptcy trustee every month. The trustee keeps a record of all payments you make during your bankruptcy. If you fail to make your plan payments, the trustee will file a motion with the court to dismiss your case.

What If the Trustee Files a Motion to Dismiss Your Case?

If you know you'll miss plan payments, it's often easier to save your case if you contact your trustee immediately. Most trustees have programs to help bankruptcy filers get caught up when they encounter payment problems.

If the trustee files a motion to dismiss, you can review and oppose it. If you don't fight the trustee's motion, the court will dismiss your bankruptcy without "discharging" or eliminating your debts. But if your nonpayment resulted from a temporary setback and you want to continue with your bankruptcy, you can oppose the trustee's motion.

The procedures for opposing a motion to dismiss will depend on the bankruptcy court rules in which your case is filed. But in general, when you oppose the trustee's motion to dismiss, the court will expect you to explain why you got behind and what circumstances have changed that will allow you to make the rest of your plan payments.

For example, suppose you missed payments because you lost your job. Now you have a new job, and your pay is enough to cover your plan payment from here on out. Or, you missed payments because you suffered an injury on the job, but now you've been released to go back to work.

In most cases, if you have a valid reason that caused you to fall behind on your payments temporarily, the court or the trustee will work with you and allow you time to catch up on your missed payments. But if the court believes you can't afford to continue your Chapter 13 plan, it will dismiss your bankruptcy.

Dismissal With and Without Prejudice

If the court dismisses your Chapter 13 bankruptcy, it can do so with or without prejudice. Most cases are dismissed without prejudice, and you can file another bankruptcy immediately.

But if you acted in bad faith or otherwise abused the bankruptcy process, the court can dismiss your case with prejudice. If the court dismisses your bankruptcy with prejudice, you might be unable to file another bankruptcy for a specified amount of time, often six to twelve months, or discharge the debts included in your first filing. The exact terms of the dismissal will depend on the court's order.

What Happens After Your Bankruptcy Case is Dismissed?

When your bankruptcy case is dismissed, you lose benefits and could be left worse off than before you filed your Chapter 13 case.

Your debts will not be discharged. Your debts are discharged in Chapter 13 only when you complete your plan, which can last three to five years. Everything you owed before the bankruptcy, you'll owe after (except for amounts applied from any plan payments you did make.) Often, creditors don't bother to file claims with the bankruptcy court, and their debts get discharged. But only if you complete the plan. When the case is dismissed, those creditors stay with you.

Any changes the court made to the terms of a debt in your Chapter 13 case will be reversed. For instance, Chapter 13 plans can lower the interest rate on a car loan and reduce the principal amount to the value of the collateral. This is called a "cramdown" of the car loan. The cramdown is reversed when the case is dismissed, minus any plan payments already made. Reversing the cramdown often puts the car loan into default. You could discover at dismissal that your loan payments are months behind.

You lose the automatic stay. The automatic stay, which prevents your creditors from taking collection actions against you while you're in bankruptcy, will no longer be in effect. Without the stay, your creditors will be free to take whatever collection actions are available under state and federal law, including filing a lawsuit, repossessing your car, foreclosing on your home mortgage, and garnishing your wages.

How to Appeal Dismissal of Your Chapter 13 Bankruptcy

As we discussed, the court or the trustee will typically work with you to help you avoid missing payments, give you a little breathing room to catch up, or resolve a motion to dismiss. Further, you can refile your case immediately if your bankruptcy is dismissed without prejudice.

Just be aware that bankruptcy tools, like the automatic stay, may be limited in new cases. As a result, appealing a Chapter 13 bankruptcy dismissal doesn't happen often.

If you wish to appeal your dismissal, you must file a notice of appeal within 14 days after your case is dismissed or request more time to appeal. In addition, you'll need to file other formal paperwork with the court explaining why the court should grant the appeal. You might also have to argue your case to a judge at a hearing.

In most cases, you'll have to show that the bankruptcy court made a mistake when it dismissed your case or that you have a compelling reason to overturn the dismissal.

Talk With a Bankruptcy Lawyer

Because appealing a Chapter 13 bankruptcy dismissal can be very complex, you'll typically need a bankruptcy attorney to guide you. They often offer the first consultation at no charge.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.