Dismissing Your Chapter 13 Bankruptcy Case When You Simply Can’t Pay

July 20th, 2010 by Reed Allmand

While there are many ways to work around a debtor’s difficulty in making payments on their Chapter 13 bankruptcy repayment plan, sometimes debtors need to simply dismiss their case.  Below are three reasons why a debtor may opt for a voluntary dismissal of their Chapter 13 bankruptcy case if they can no longer pay:

1. There is no way for you to make payments on your debt in Chapter 13 bankruptcy; but some of your creditors have been paid.  The bankruptcy dismissal will put the creditors out of the bankruptcy case but they will need to start from square one if they want to pursue collections actions against you. Since the creditors have received some payments from you via Chapter 13 bankruptcy, they may be more willing to settle the debt.
2. While you may now have difficulties paying your Chapter 13 bankruptcy plan, most of your most important creditors have been paid in full, leaving you less vulnerable to lawsuits.  For example, if your taxes were paid in full under the Chapter 13 bankruptcy plan while a few mom and pop debts were not, opting for a Chapter 13 bankruptcy dismissal when you can’t pay might not be such a bad choice.
3. A debtor may opt for a Chapter 13 bankruptcy dismissal instead of a conversion to Chapter 7 bankruptcy if they have important assets that cannot be protected with exemptions in Chapter 7 bankruptcy.  Opting for a dismissal in this instance will at least give the debtor an opportunity to negotiate some type of settlement with the creditor so that their assets are not in jeopardy.

It’s important to remember that even if you decide to voluntarily dismiss your bankruptcy case, it will still remain on your credit report for the prescribed number of years.