Two ways a Chapter 13 ends: dismissal or discharge
There are two main ways that a Chapter 13 bankruptcy ends:
The majority of Chapter 13 ends in dismissal.
Chapter 13 bankruptcy is where you are making payments into court, which is sometimes called “debtor’s court.” For 3 years or 5 years (or possibly longer during Covid), you are making payments to court.
If you stop making payments and the case can be dismissed.
Once it has been dismissed you no longer have any protection under the bankruptcy law.
When you complete your payments, you receive a discharge.
We often think of a bankruptcy discharge in relation to a Chapter 7 bankruptcy. However, it can also happen in Chapter 13 if you make all your payments.
This means (to some extent) all those debts that were brought into the bankruptcy court have been discharged.
If these are ongoing obligations, such as a car or mortgage, the discharge is really on the amount that you were behind on when your Chapter 13 was filed.
For instance, you are $10,000 behind on mortgage. With Chapter 13, you continue to pay, but over the 3 or 5 year period, you pay the extra $10,000 you were behind.
The extra amount is taken care of alongside your current obligations.
The significance is that when you receive a discharge under Chapter 13 or Chapter 7, no collector or creditor can try to come back after you for the debts which were discharged.
Let’s say I have $10,000 in arrearage (back payments on my mortgage) and I put forth a plan, the judge approves, I make all my payments, and now I get a discharge of that arrearage.
6 months later the mortgage company says I still owe $5,000 for that arrearage.
This is not possible because I got a discharge. I owe the mortgage company nothing.
Maybe it’s a medical bill, and the judge says I can pay $0.50 on the dollar for it and I pay it off.
Later, after this debt has been discharged, the debt collector comes along and says they are going to collect the other half. They cannot do this.
If they do this, they violate the discharge order and usually the FDCPA.
Here’s another common scenario:
I’m behind on my mortgage and have filed Chapter 13 to save my house from foreclosure.
I have made my payments.
As I get closer to the end of my Chapter 13 payments, the trustee puts forth what we call the “speak now or forever hold your peace” statement.
This says if anyone claims that John Watts still owes money they better go on and say it now.
The mortgage company doesn’t say anything and then I complete my payments and get my discharge.
After the discharge, the mortgage company claims they forgot $5,000 in fees or they didn’t receive all my payments so they are coming to collect them.
But I have this discharge order.
This is a discharge violation, a violation of the FDCPA (many mortgage companies are considered debt collectors) and also RESPA (Real Estate Settlement Procedures Act).
We may question the mortgage company with a letter to ask why or point out the error. If we send this and they do not fix it, then we can sue them under RESPA.
These are the two ways a Chapter 13 bankruptcy ends.
In one, you don’t make all the payments and Chapter 13 fails and there is a dismissal. You have no protection under bankruptcy law.
In the other, you make all of your payments which results in a discharge. The collector can take no further collection action on this debt.
If you have been through a Chapter 13 bankruptcy, look back and see if you got a dismissal or a discharge. A discharge is the much stronger position to be in.
We hope this is helpful to you!
If you live in Alabama and you have any questions, feel free to get in touch with us.
We would be glad to help you in any way we can.
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Thanks for reading, and have a great day!
PS — If you are interested in Bankruptcy, you might want to watch these videos: