If a debtor fails to keep up with payments under their repayment plan in a Chapter 13 bankruptcy, the bankruptcy trustee may file a motion to dismiss their case. This means that their debts would not be discharged because the case would be considered unsuccessful. Fortunately, a debtor has an opportunity to object to this motion. They usually have just 21 days to respond, and it is critical to comply with this deadline.
A debtor responding to a Chapter 13 motion to dismiss might argue that the trustee is wrong, or they might argue that they can solve the problem. If they are arguing that the trustee is wrong, they should carefully document the reasons why the trustee is unjustified in seeking a dismissal. This might involve providing copies of pay stubs that show deductions from their wages to make payments, for example. If they are arguing that they can solve the problem, the debtor will want to propose a clear plan for addressing it. They might also explain why the situation that disrupted their payments was unforeseen and temporary.
Modifying a Repayment Plan
If you cannot keep up with payments and do not anticipate the situation changing, you can try to work out a modified repayment plan with the trustee that involves a reduced monthly payment. Some payments under a Chapter 13 repayment plan are mandatory, so you will not be able to modify your plan if you can no longer pay off these types of debts.
Converting from Chapter 13 to Chapter 7
If you cannot modify your plan, you might be able to change your bankruptcy from Chapter 13 to Chapter 7. This would involve showing that you meet the means test required for Chapter 7 eligibility. Any non-exempt assets would need to be surrendered to the bankruptcy trustee. You should discuss this option with an attorney before making the decision to convert your bankruptcy.
Getting a Hardship Discharge
Debtors who are facing extreme challenges may apply for an early discharge if they cannot modify their plan, and they have paid creditors to the extent that they would have paid them in a liquidation bankruptcy under Chapter 7. A hardship discharge is only available if the circumstances causing the hardship were outside the debtor’s control. This discharge is rarely granted but may be worth exploring if you have few other options.
Dismissal and Starting Over
Failing to respond to a motion to dismiss likely will result in a dismissal without prejudice, which allows a debtor to refile at any point. Until and unless you file again, you will lose the protections provided by bankruptcy, such as the automatic stay. However, if you have suffered a substantial financial blow and cannot convert to Chapter 7, this may be your only option if you cannot get a hardship discharge. You can file again as soon as you qualify for either Chapter 7 or Chapter 13. This will also involve filing a separate motion with the court to ask for an extension of the automatic stay, assuming that you file within a year of the dismissal.