Resources for Chapter 13 Petitioners

 

 

Notice

This information is not meant to convey legal advice to an individual seeking Chapter 13 bankruptcy reorganization, but is meant strictly as an educational tool.

 

 

 

 

Dismissal vs. Discharge

The terms dismissal and discharge in a bankruptcy case are two different terms which have two completely different meanings.

DISMISSAL
If the Chapter 13 plan is dismissed, creditors may immediately initiate or continue with state court litigation pursuant to applicable state law to foreclose on the petitioner's property or garnish their income. If a bankruptcy case is dismissed, the legal affect is that the bankruptcy is deemed void.

For example - If when filing a Chapter 13 petition, the petitioner owes the IRS $10,000.00 and manages to pay the IRS $9,000.00 before the case is dismissed, this does not necessarily mean that only $1,000.00 is remaining to be paid to the IRS outside the plan. During a Chapter 13 plan, many creditors (including credit card companies) hold interest and penalty charges in abeyance. If a Chapter 13 plan is successfully completed, the interest and penalty charges are void and collection is not sought from the petitioner. However, if the case is dismissed, all money paid under a Chapter 13 bankruptcy may be applied toward interest and penalties; and therefore, petitioners may find themselves still owing a large balance to creditors. In the above example with the IRS, it cannot be assumed that there is only a $1,000.00 balance owed, as the IRS would be allowed to collect interest and penalties which were held in abeyance during the Chapter 13 plan.

A dismissal of a Chapter 13 case in which a petitioner has made substantial compliance is a serious matter. The petitioner is urged at all times to keep in contact with their attorney to determine their best course of options should the petitioner discover that it is not possible to continue with the monthly Chapter 13 plan payments as proposed in the plan.

DISCHARGE
If a Chapter 13 plan is completed successfully, the petitioner will earn a discharge. Discharge means that all debt listed in the Chapter 13 plan is satisfied; and therefore, creditors may not pursue additional collection actions pursuant to applicable state law. If a debt has been discharged in a bankruptcy, and a creditor seeks further collection from the petitioner, the petitioner should immediately contact their attorney regarding the efforts to collect by a creditor who has had their claim discharged in bankruptcy.

  
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