It's not unheard of for people to run into trouble making their chapter 13 payments. If you miss too many payments in a row, though, the trustee will petition the court to dismiss your case. You may be tempted to let that happen or request a dismissal yourself, but here's why you should avoid that option.
You'll Lose Valuable Protections
Chapter 13 bankruptcy offers a number of benefits, but the most important one is the automatic stay. This statute prohibits creditors from initiating or continuing collection action (e.g., wage garnishments) while your bankruptcy case is active. For many debtors, this protection is often critical to helping them get back on their feet because it stops creditors from taking money they need to fix their finances.
Unfortunately, when your bankruptcy is dismissed by the court, the automatic stay is lifted. Your creditors will act fast to collect on debts you owe, and you may find yourself in a worse situation financially than when you first filed bankruptcy.
More concerning, though, is that the court may limit your ability to use the automatic stay in future filings. While you can usually file another bankruptcy after your first one is dismissed, the court may reduce the amount of time the automatic stay is in effect or even eliminate it altogether depending on the circumstances of your case.
For instance, if you file another bankruptcy within one year after your case was dismissed, the court may make the automatic stay only effective for the first 30 days of your second filing. Once that month ends, creditors will be free to pursue collection action even while your bankruptcy case is active.
To avoid this, you'll need to prove you are filing your second bankruptcy case in good faith and not as a way to avoid paying bills. It's best to consult with a bankruptcy attorney for advice on how to avoid being penalized when filing another bankruptcy after a case dismissal.
You May Be Restricted From Filing Again
A second problem that may crop up when your bankruptcy case is dismissed is that the court can prohibit you from filing another one for a period of time. This usually occurs when the judge or the trustee feels a debtor is abusing the system or attempting to commit fraud of some kind.
For instance, a person who files bankruptcy twice but fails to do the tasks required to move the case forward, resulting in dismissals, may be barred from filing bankruptcy again for six months or more.
In a situation like this, not only will you need to show your previous filings were legitimate but also that you can and will follow through on your current petition. Again, it's a good idea to talk to a bankruptcy attorney who can help you overcome the court's objections and get the help you need.
For more information about bankruptcy or help filing a petition, contact a local lawyer.