How to Repay Creditors After a Bankruptcy Dismissal

A bankruptcy dismissal is a serious issue because it strips away protection from creditors, a primary reason many people file for bankruptcy. Once the court dismisses the bankruptcy, creditors are free to resume all legal debt collection tactics, including phone calls, letters, repossession, foreclosure and even garnishment. Creditors can proceed as if the bankruptcy never happened. Bankruptcy courts dismiss bankruptcy petitions for a number of reasons, including procedural errors or suspected fraud. Judges dismiss some Chapter 13 bankruptcy cases after debtors fail to make timely payments to court-ordered payment plans. Chapter 13 requires monthly debt payments to the court over a period of three to five years.

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Consult with your bankruptcy attorney, or see an attorney if you represented yourself in the bankruptcy case. Reinstating the bankruptcy is possible if the court dismissed the case because of unintentional errors. The attorney can discuss other options as well, including possibly converting what was a Chapter 13 bankruptcy to Chapter 7 and eliminating all unsecured debts in just a few months.

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Read your copy of the bankruptcy application to see the list of all your creditors if reinstating the bankruptcy or filing under another chapter is not an option. The bankruptcy court will inform creditors about the dismissal, allowing them to resume collection efforts. Make a list of the creditors who were aggressively collecting from you before the bankruptcy. Include creditors who filed lawsuits against you, garnisheed or attempted to garnishee your wages or began foreclosure or repossession efforts. It's reasonable to assume these creditors will again show the most aggressiveness after learning about the dismissal. Focus on them first as you decide how to pay creditors.

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Contact each of your lenders to discuss payment options. Tell the creditors you are no longer proceeding with bankruptcy but wish to make payment arrangements. What happens from this point depends on what you can negotiate and your specific situation. Most people with recent bankruptcy dismissals simply don't have much cash to spend on debt management. However, if you do, you can offer to pay in full or you can ask for a settlement offer. Payment plans are also an option. Settlement allows you to pay unsecured debts for less than the full balance. However, debt collectors are not obligated to agree to any plan and can press ahead with garnishment, repossession or foreclosure. That's a key reason why reinstating the bankruptcy is a preferable move for some.

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