How to Negotiate With Creditors After a Chapter 13 Bankruptcy Dismissal

How to negotiate with creditors after a dismissal from a chapter 13
Information in this article does not constitute legal advice, it is for informational purposes only, and may not constitute the most up-to-date information. Readers should contact their attorney for advice on any particular legal matter.

The primary goal of a Chapter 13 bankruptcy case is to eliminate unmanageable debts and establish a stable financial plan.

While most people complete their Chapter 13 process, sometimes dismissal may occur for various incentives. In such cases, it is crucial to acknowledge how to work with creditors to mitigate the impact of the dismissal.

It's essential to consider the pros and cons before voluntarily dismissing your Chapter 13 case. This article covers these aspects in detail, providing valuable insight into the potential consequences of dismissal.

Keep on reading, or jump ahead to the section that interests you most.

Table of Contents

How Do Lenders Become Aware of My Chapter 13 Dismissal?

A common reason for dismissing a Chapter 13 bankruptcy case is the inability of the debtor to make payments. This can happen if the debtor:

  • Loses their job
  • Suffers an injury, or
  • Becomes ill

Other reasons for dismissal are the failure to:

  • File the necessary documents
  • Meet deadlines
  • Attend proceedings
  • Submit yearly tax returns

When a Chapter 13 custodian records a proposal to Dismiss, the lender receives a similar copy of the proposal and has a specific period to object and ask for a proceeding. If no response is made, the court then orders for dismissal. 

If the debtor objects, they must provide a valid reason why their lawsuit should not be dissolved. In the event of dismissal, the bankruptcy administrator sends an announcement to all lenders and other interested parties. 

Consider Hiring A Firm

Consider hiring a debt relief firm that specializes in negotiations. These firms often understand which companies are more likely to sue you, which helps with prioritization, especially if your debt is now far behind due to your Chapter 13 dismissal.

Use this free debt relief calculator to estimate how much it would be to use a firm vs doing it yourself.

Questions to Ask Yourself:

  1. How many creditors do I have? If you have just 1-2 creditors then settling the debt yourself may make more sense to save on the debt settlement fees.
  2. Do I have a great deal of time available to settle debt?
  3. Do I like speaking on the phone to creditors and debt collectors who are not always pleasant to speak with?
  4. Am I so organized that I can make sure I am making payments to each settlement if there are 4-5 settlements going on at one time?
  5. Do I have the accountability to make sure that I save funds every month to settle the debt?

What Consequences Come with a Chapter 13 Dismissal?

If a debtor fails to complete their Chapter 13 plan, their debts will not be discharged, and the extra money owed to all lenders becomes payable. The dismissal of the Chapter 13 case significantly affects any changes made to the terms of the debts by the plan.

For instance, if the Chapter 13 plan reduced the interest rate or the amount owed on a vehicle, the dismissal of the case could increase the interest rate. This applies to the original loan rate for the remaining balance, and the debtor will now owe the entire balance due on the account.

Similarly, suppose the plan required the debtor to pay only a percentage of the remaining money owed to unguaranteed lenders to discharge those debts. In that case, the dismissal will require the debtor to pay the total amount payable to the account.

In addition to owing the remaining balances, the court order that secured the debtor from lenders' actions during the Chapter 13 case ends upon dissolution. Consequently, creditors can make all legal efforts to collect unpaid debts, including recording debt collection cases. 

The dismissal of a case can have severe consequences, and debtors must take timely action to address any issues that may arise during the bankruptcy process.

What Happens to Lawsuits That Were Filed Before I Filed Bankruptcy?

When a person files for bankruptcy, the court order prevents lenders from pursuing debts, resulting in lawsuits generally being dismissed. However, if the person has only been in Chapter 13 for a short period, the suit may still be active, and the creditor can proceed with the case.

If the court dismissed a lawsuit due to bankruptcy filing, the lender could record a new lawsuit after the Chapter 13 case was dismissed. The lender can make a personal judgment against the debtor and request a lawsuit to collect the debt.

Understanding the potential consequences of filing for bankruptcy, including the impact on pending lawsuits, is essential.

Settling Debts After a Chapter 13 Dismissal

Experiencing a bankruptcy dismissal can be an overwhelming experience, especially when creditors start reaching out to you for payment. One way to handle this is through debt settlement.

Debt settlement is negotiating with creditors to reorganize the debt by agreeing on a payment schedule. This could include reducing the deficit, lowering the interest rate, or increasing the repayment term.

If you have experienced a Chapter 13 dismissal and are considering debt settlement, you should keep a few things in mind. First, assessing your current income and expenses is essential to determine how much you can realistically afford to pay back to your creditors.

You can only pay the amount of your disposable income towards the debt, so creating a realistic budget is vital. 

Once you have established how much you can pay back, you should list all your debts and separate them into unsecured and secured debts. Secured debts are necessary to pay to keep your property and car. Therefore, working with secured creditors to reinstate the loan and find a reasonable payment schedule is essential.

Unsecured debts, too, need attention. While these are the last option, you should negotiate with your general unsecured lenders because they can record debt collection cases if the debt remains unpaid.

Before contacting your lenders, it is wise to use a free credit relief calculator to determine the best approach to negotiate with them. This tool will help you assess the situation and decide which payment plan will work best. 

Dealing with creditors can be overwhelming, but with careful planning and a realistic budget, it is possible to work out a payment plan and settle your debts.

What Other Alternatives Are Available for Resolving Debts?

If debt settlement is not the right option, other alternatives may suit your needs. For example, debt management can assist you in quickly repaying debts by negotiating interest rates with your lenders.

A debt payoff planner can also provide a plan for paying off your debts, which can help you stay on track and manage your finances better.

In other cases, debt reinforcement credit can help resolve debt problems. It is, however, essential to consult with a debt solace advisor before obtaining a loan against your property or other valuable assets to pay unsecured debts. 

If you need to file for bankruptcy again, you may be eligible for Chapter 7 bankruptcy. Unlike Chapter 13, Chapter 7 does not require paying monthly installments. Instead, you dissolve your general unsecured debts without paying any cash to those lenders.

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