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A Chapter 13 bankruptcy can be dismissed for a number of different reasons.
It can be dismissed voluntarily—because you decided that the Chapter 13 process wasn’t working for you at a particular time.
Chapter 13 bankruptcy is the best consolidation of debt you’ll ever get. It doesn’t require negotiation with the creditors holding your unsecured debt, can save your home from foreclosure, can help you repay your tax debt without interest or penalties and protects you from creditor collection activity for as long as 5 years.
It can also be dismissed involuntarily—because you failed to make your monthly Chapter 13 plan payments or to abide by some other requirement of the bankruptcy process.
One of the greatest advantages that a Chapter 13 bankruptcy has over a Chapter 7 is that it can be voluntarily dismissed. A Chapter 7 liquidation bankruptcy, alternatively, can only be dismissed by motion, to which creditors and the Chapter 7 Trustee assigned to the case have the right to object.
Although Chapter 13 bankruptcy is a 3-5-year process, it is not a cage which cannot be escaped. It is a process that can be modified or dismissed as your real-world circumstances require. The right of a debtor to dismiss his or her Chapter 13 bankruptcy case with the filing of a mere Notice of Dismissal is nearly absolute.
Chapter 13 also comes with obligations that are mandatory, such as, in Detroit, the requirement that you turn over your Federal tax refund each year. Failure to uphold those obligations results in a dismissal that you didn’t ask for.
The debt you owe, however, doesn’t vanish until and unless you either pay it off, settle it for less than owed—or obtain a bankruptcy discharge.
What happens if and when you want to re-file a new Chapter 13 bankruptcy after dismissal?
RE-FILING CHAPTER 13 BANRUPTCY: QUESTIONS OF FAITH
If your Chapter 13 bankruptcy is dismissed, voluntarily or involuntarily, you have the right to re-file a new Chapter 13 so long as it is a “good faith” filing.
What does that mean?
The US Bankruptcy Code does not define “good faith” or “bad faith.”
As a result, the Sixth Circuit Federal Court of Appeals, in which Michigan sits, has elaborated through case-law a test for good faith.
The so-called Caldwell Test involves a judicial review of 12 factors in determining whether a Chapter 13 bankruptcy has been filed in good faith.
These factors are:
- The amount of the proposed Chapter 13 plan payments and the amount of debtor’s surplus monthly income;
- The debtor’s employment history and likelihood of future income increases;
- The expected duration of the plan;
- The accuracy of the Chapter 13 plan statements filed and whether there is any attempt to mislead the court involved;
- The extent of “preferential” treatment of creditors;
- The extent to which secured debts are “modified”;
- The type of debt to be discharged and whether any would have been non-dischargeable in Chapter 7 bankruptcy;
- The existence of special circumstances such as inordinate medical expenses;
- The frequency with which the debtor has sought Bankruptcy relief;
- The motivation and sincerity of the debtor in seeking Chapter 13 relief;
- The burden which the plan’s administration places upon the Chapter 13 Trustee; and
- Whether the debtor is attempting to abuse the spirit of the Bankruptcy Code.
What should be clear from even a layperson’s review of this jargon-filled list of factors is that of primary concern to the Bankruptcy Court in determining good or bad faith is the math underlying the plan rather than some sinister motivation.
In other words, so long as the debtor has sufficient income to fund the Chapter 13 plan as filed, is not withholding expenses, and is not improperly attempting to pay or underpay or “change” the amount owed to one creditor or another, it is likely that the Bankruptcy Court will find that a plan is filed in good faith.
However, the 3 factors italicized above are of special concern in re-filed or subsequent Chapter 13 cases.
It will be more difficult for an objecting creditor or Chapter 13 Trustee to prove bad faith on the basis of these italicized provisions—but that won’t stop them from trying.
If you are re-filing your third Chapter 13 in a year, the circumstances that make the odds of this Chapter 13 filing more successful in the eyes of the Court than prior filings will be heavily scrutinized, as well as your motivation for filing the case.
Are you filing your successive Chapter 13s to avoid a single judgment creditor’s lawful collection attempts?
That is the sort of circumstance that will smell like bad faith to a Bankruptcy Court judge.
WHAT IS DIFFERENT IN THE RE-FILED CHAPTER 13 BANKRUPTCY CASE?
Presuming that your new Chapter 13 case has been filed in good faith, what else is different the second (or third) time around?
The primary difference, presuming your prior Chapter 13 wasn’t dismissed under some level of duress, is that you need to explain to the Court why you should have the “automatic stay” extended from your last case to the new one.
The “automatic stay” is the injunction that activates upon the filing of the bankruptcy matter that causes all collection activity to cease immediately.
It is the reason that creditors cannot continue to sue you or garnish your wages or foreclose your home, among other things, when you file a bankruptcy. It will immediately stop garnishment of wages or bank accounts and can save your home from a pending foreclosure action by your mortgage company.
When you file a bankruptcy petition more than a year from a prior case’s dismissal, the stay injunction is, as advertised, “automatic.”
When you file a new Chapter 13 bankruptcy case after a prior case has been dismissed, it is not automatic.
If you re-file your case within 30 days of the dismissal of the prior case, you can file a motion to have the stay “extended” to the new case.
When this motion is granted, it continues on for the length of the new Chapter 13 as if the old one had not been dismissed.
The motion requires that you prove that the new, re-filed Chapter 13 bankruptcy case has been filed in good faith and is likely to be (mathematically) feasible. The Court will schedule a hearing at which you must explain to the Court what the changed circumstances in your life that will enable the new Chapter 13 case to succeed.
The motion to extend the automatic stay must be noticed out to all of your creditors, and any party may object if bad faith is a salient issue.
If you don’t file the motion or your motion isn’t granted by the Court, you’ll have no automatic stay in the re-filed case.
If you’re filing a third case within a year, the automatic stay simply doesn’t apply unless your bankruptcy attorney successfully prosecutes a separate motion to enforce the automatic stay, approval of which will be entirely within the discretion of the Bankruptcy Court judge.
RE-FILING A CHAPTER 13 BANKRUPTCY CASE: THE BOTTOM LINE
The bottom line is that, if you are filing or re-filing a Chapter 13 bankruptcy, it is essential that you retain an experienced attorney to assist you. You will not successfully prosecution the motions required in a successive Chapter 13 bankruptcy filing without professional legal assistance.
Attorney Walter Metzen has represented thousands of consumers in Chapter 7 and Chapter 13 bankruptcy cases in Michigan. A Board Certified Bankruptcy Expert, Attorney Metzen has successfully obtained discharges of debt in bankruptcy for his clients for over 30 years.
The Law Offices of Walter A. Metzen & Associates offers free consultations for those interested in the bankruptcy process and is experienced in determining and advising as to the best course of action when filing a Chapter 7 or Chapter 13 bankruptcy in Michigan.
