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Dumping Your Chapter 13 Case Midstream

Posted by Kevin on August 20, 2017 under Bankruptcy Blog | Comments are off for this article

You can usually get out of an ongoing Chapter 13 “adjustments of debts” bankruptcy case by simply asking to do so.

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Unlike Chapter 7, if you file a Chapter 13 case you can end it—“dismiss” the case—at any time, and in just about any circumstance. But why the difference?

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Explicit Right to Dismiss

Why can a Chapter 13 case be dismissed by the debtor? Because unlike with Chapter 7, Section 1307(b) of the Bankruptcy Code says so. And quite strongly.

“On request of the debtor at any time… the [bankruptcy] court shall dismiss a case under this chapter [13].”

Notice that the debtor can ask for a dismissal “at any time.” This implies that the request could come any time during the life of a Chapter 13 case, including when it might be particularly inconvenient for a creditor. Or whenever. Also notice that the court does not seem to have any discretion about whether or not to dismiss–it “shall” dismiss the case. Not “may” or “might” dismiss it, but “shall” do so.

An Absolute Right to Dismiss?

Actually there has been debate among bankruptcy judges about whether a court can ever prevent a Chapter 13 case from being dismissed on request of a debtor. And a number of judges have decided that in situations of serious abuse or fraud by the debtor, there are other provisions in the law that trump this section and prevent a Chapter 13 case from being dismissed.  But still, in the vast majority of situations, a request by a debtor to dismiss a Chapter 13 case results in its near-immediate dismissal.

Why So Different Than Chapter 7?

But why does the Bankruptcy Code—the federal statute governing bankruptcy—provide for a right to dismiss a Chapter 13 case when it does not provide for Chapter 7 dismissal the same way?

Because (beyond the reasons given in the last blog related to Chapter 7) when Congress established the bankruptcy options, it wanted to encourage debtors to file Chapter 13 cases. This was in part so that they paid back at least some of their debts. Congress probably also recognized that filing a Chapter 13 case is generally riskier than filing Chapter 7. That’s mostly because it involves making payments diligently over the course of years, while not getting the reward of the discharge (legal write-off) of the debts unless successfully getting all the way to the end of it. To encourage taking on the risk of starting a Chapter 13 case, Congress made it easy to get out of it if things did not go as planned.

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