Why Do Chapter 13 Bankruptcies Fail and How to Prevent It

Chapter 13 bankruptcies fail for a short list of reasons, and the most common one is simple: the debtor stops making the monthly plan payment. Federal court data shows roughly 51 percent of Chapter 13 cases closed in 2020 were dismissed rather than completed, and payment default accounted for 53 percent of those dismissals.¹ The rest of the failures cluster around a handful of predictable problems: plans that can’t get confirmed, post-petition bills that go unpaid, missed procedural steps, and occasionally, misconduct. Most of these are preventable if you see them coming.

Missed Plan Payments

Nothing sinks a Chapter 13 case faster than falling behind on the monthly payment to the trustee. Federal law requires payments to begin within 30 days of filing the plan, before the court has even confirmed it.² From then on, you owe a payment every month for three to five years. Miss a couple, and the trustee can file a motion to dismiss for material default.³

The triggers are the ones you’d expect. Job loss. Reduced hours. A medical bill. A transmission that gives out and eats the money set aside for the trustee. Sometimes the plan was set too tight from the beginning and never had room for anything to go wrong. Three to five years is a long time to hold a rigid budget together.

Once a motion to dismiss is filed, you typically have about 21 days to respond. Bringing the payments current before the hearing is the cleanest fix. A partial catch-up payment can show good faith and buy time while you work out something longer-term. If the default isn’t cured and no alternative is proposed, the judge will grant the dismissal, and creditors can restart collection the same day. The court can also convert the case to Chapter 7 instead, in which case your non-exempt property may be sold.³

The Plan Doesn’t Get Confirmed

Before the plan takes effect, a bankruptcy judge has to confirm it. Confirmation is not automatic, and if the plan fails any of several legal tests, the court will reject it. A rejected plan doesn’t end the case immediately, but if you can’t propose one that works, dismissal follows.

Feasibility

The judge has to be convinced you can actually afford what you’re proposing. If your income barely covers the payment after necessary expenses, the plan isn’t feasible and won’t be confirmed.⁴ Optimistic budgets and projected income from jobs you haven’t started yet draw skepticism.

The Best Interest of Creditors Test

Unsecured creditors have to receive at least as much through your plan as they would in a Chapter 7 liquidation. If your plan pays them less than the value of your non-exempt assets, the court won’t approve it.⁴ Debtors with meaningful home equity or valuable personal property face a higher bar here.

Disposable Income

If the trustee or an unsecured creditor objects, you have to commit all projected disposable income to the plan. Debtors earning above the state median get pushed into a five-year plan with expenses calculated under standardized IRS guidelines. Below-median debtors can qualify for a three-year plan and get more flexibility on expenses.⁴ Fights over what counts as a reasonably necessary expense are among the most common confirmation disputes.

Good Faith

Both the plan and the decision to file must be in good faith. A high earner proposing to pay unsecured creditors almost nothing will draw an objection, as will a debtor who ran up debts right before filing.⁴

The 910-Day Vehicle Rule

Chapter 13 plans can sometimes reduce a car loan’s secured portion to the vehicle’s current market value, treating the rest as unsecured. Federal law blocks this for vehicles purchased within 910 days (roughly two and a half years) before filing. On a recent car purchase, the entire loan balance stays secured and must be paid in full.⁴ Plans that try to cram down a recent vehicle purchase get rejected.

Post-Petition Bills You Have to Keep Current

The plan handles what you owed before filing. Bills that come due after filing are usually your responsibility to pay separately, on top of the plan payment. Letting these go is a common way to lose a case.

The obligations that matter most are the mortgage on any home you’re keeping, domestic support like child support or alimony, and any tax returns and taxes that come due during the plan. Federal law lists failure to pay post-petition domestic support as an explicit ground for dismissal.³ The court also won’t grant your discharge at the end unless you certify that all domestic support payments are current.⁴

Mortgage lenders won’t wait. If you miss post-petition payments, they can ask the court to lift the automatic stay for their loan.⁵ Once it’s lifted, foreclosure can proceed as if you’d never filed. If the plan is already curing pre-filing arrears, missing current payments puts you underwater on both sides.

Missing Procedural Requirements

Chapter 13 asks more of you than monthly payments. A stack of procedural obligations sits alongside, and skipping any of them can get the case dismissed.

Tax Returns and Documents

You have to file schedules of assets, liabilities, income, and expenses, plus pay stubs from the 60 days before filing.⁶ The trustee gets your most recent federal tax return at least seven days before the first meeting of creditors. And throughout the plan, you have to keep filing federal, state, and local tax returns on time. The court cannot confirm your plan until all required returns are filed.⁴ Falling out of compliance is independent grounds for dismissal.

The 341 Meeting

Every debtor has to attend a meeting of creditors, known as the 341 meeting. The trustee runs it, puts you under oath, and questions you about your finances and paperwork. Creditors can attend and ask their own questions.⁷ Skipping the meeting without a good reason is one of the fastest ways to lose a case.³

The Debtor Education Course

Before the court grants a discharge, you have to complete an approved debtor education course (sometimes called a financial management course). This is different from the pre-filing credit counseling you did to be eligible to file at all.⁸ Both are mandatory.⁹ Debtors sometimes make every payment for five years and then lose the discharge because they never took the course.

Trustee Requests

You have a general duty to cooperate with the trustee and turn over records the trustee asks for.⁶ Bank statements, proof of insurance, documentation of a bonus—when the trustee asks, you produce it. Ignoring requests gives the trustee grounds to seek dismissal.

Concealment and Fraud

Bankruptcy runs on disclosure. Every asset, every debt, and every source of income has to be listed under penalty of perjury. Debtors who hide assets, underreport income, or transfer property to friends or family before filing to keep it out of the estate almost always get caught. Trustees have access to tax records, bank statements, and property databases. Fraud-based dismissals are less common than payment defaults, but the consequences are more severe: the court can unwind transfers, dismiss the case, and in serious situations refer the matter for criminal prosecution. Debts obtained through fraud can also be declared permanently non-dischargeable in any future filing.

How to Save a Case That’s in Trouble

A struggling Chapter 13 is not automatically a dead one. Federal law gives you several tools, and using them early is far better than waiting for a motion to dismiss.

Modify the Plan

After confirmation, you (or the trustee, or a creditor) can ask the court to modify the plan. Modifications can lower or raise payments, extend or shorten the term, or change how much a specific creditor receives.¹⁰ If your income dropped or a necessary expense appeared, a modification can bring the monthly payment down to something you can actually sustain. The modified plan still has to satisfy feasibility and the best interest test, but courts tend to prefer modification over dismissal when the debtor is trying.

Request a Moratorium

Some courts allow a temporary suspension of plan payments during a short-term crisis. You file a motion explaining the hardship and how you’ll catch up. Moratoriums generally run about three months and require a genuine reason, like a temporary medical issue or a brief gap between jobs. The missed payments don’t vanish; your future amounts go up to cover them. Used correctly, the breathing room can prevent a dismissal that would otherwise be inevitable.

Hardship Discharge

When something catastrophic makes finishing the plan impossible and no modification can fix it, you may qualify for a hardship discharge. You have to show three things: the failure to complete payments isn’t your fault, unsecured creditors have already received at least what they would have gotten in Chapter 7, and further modification isn’t practical.¹¹

Courts grant these sparingly. A qualifying event usually means a disabling illness or injury that permanently ends your earning capacity. Losing a job or having hours cut typically won’t qualify, because the court expects you to pursue modification or new work first. The hardship discharge is also narrower than a normal one: it doesn’t wipe out debts that would survive Chapter 7, including domestic support, most tax debts, student loans, and debts from fraud or drunk driving injuries.

What Dismissal Actually Costs You

Understanding the aftermath is why fighting for a modification is almost always worth the effort.

The Stay Ends Immediately

The automatic stay that stopped collection actions when you filed disappears the moment the case is dismissed.⁵ Lawsuits, garnishments, foreclosure, repossession, and creditor calls can all resume the same day. A foreclosure paused by your filing picks back up where it stopped.

Money Already Paid Stays Paid

Funds the trustee already distributed to creditors stay with those creditors. Undisbursed money in the trustee’s hands comes back to you, minus administrative costs.¹² Payments you made toward unsecured debts don’t reduce the balances those creditors can now pursue, because plan payments were distributions under the plan, not direct debt payments. You can pay in for months or years and still owe most of what you started with.

Refiling Gets Harder

You can usually file a new case after a dismissal, but the rules penalize repeat filings. If the previous case was dismissed because you willfully failed to obey court orders or appear, or if you voluntarily dismissed after a creditor moved for stay relief, you can’t file again for 180 days.¹³

Even without the 180-day bar, refiling within a year weakens the automatic stay sharply. One prior dismissal in the past year, and the stay in the new case expires after 30 days unless the court extends it. Two or more, and there’s no automatic stay at all until you ask the court to impose one.⁵ In both situations, the court presumes the new filing isn’t in good faith, and the burden is on you to prove otherwise. If the point of filing was to stop a foreclosure, losing the stay wipes out most of the reason to refile.

Eligibility Limits Worth Checking Before You File

Chapter 13 is only available to individuals whose debts fall below certain dollar thresholds, with separate caps for secured and unsecured debts.¹² The limits are adjusted periodically. Debtors who take on additional debt between the initial attorney consultation and the filing date, or whose home value shifts the picture, can end up ineligible. If your numbers are anywhere close to the caps, verify them before filing rather than after.

1
United States Courts. BAPCPA Report – 2020
2
Office of the Law Revision Counsel. 11 U.S. Code 1326 – Payments
3
Office of the Law Revision Counsel. 11 USC 1307 – Conversion or Dismissal
4
Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan
5
Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
6
Office of the Law Revision Counsel. 11 U.S. Code 521 – Debtor’s Duties
7
United States Department of Justice. Section 341 Meeting of Creditors
8
United States Department of Justice. Credit Counseling and Debtor Education Information
9
United States Courts. Credit Counseling and Debtor Education Courses
10
Office of the Law Revision Counsel. 11 USC 1329 – Modification of Plan After Confirmation
11
Office of the Law Revision Counsel. 11 USC 1328 – Discharge
12
United States Courts. Chapter 13 Bankruptcy Basics
13
Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor