Bankruptcy “dismissal” sounds a lot like bankruptcy “discharge,” but these two terms have very different meanings. It is important to understand this and to ensure you end up on the right side of the court ruling. A dismissal may mean you lose bankruptcy protection and remain accountable for debts you had expected to be discharged.
Bankruptcy Dismissal vs. Discharge
After a successful bankruptcy filing, discharge means the terms have been satisfied and all debts are considered settled — this is the outcome you are working toward when you file for bankruptcy. At the point of discharge, your creditors will have collected all they are entitled to under the law and are then barred from continuing to pursue you, the petitioner, to recoup more money.
In a Chapter 13 case, discharge occurs after your court-approved, creditor repayment plan has been satisfied, usually in three to five years. Chapter 7 filers will see discharge much sooner, once allowable assets are liquidated to pay off creditors.
A dismissal in either case means there has been a failure to complete bankruptcy orders, a procedural error, or other problem. The case is dismissed by the court, and all potential financial accommodations are voided. This means your creditors can initiate new collection proceedings, pursue a lawsuit against you, garnish your wages, and assess fees and penalties on unpaid balances.
Bankruptcy Dismissal – How Does it Happen?
Clearly, bankruptcy dismissal is a scenario you want to avoid in most cases. It is important to note: a dismissal will show up on your credit report and can affect your credit as much as a discharge. And, once a Chapter 13 case has been dismissed, you are not eligible to file again for 180 days.
Common reasons for dismissal of a bankruptcy case include:
- Missed payments – A Chapter 13 petitioner fails to follow through on the Trustee’s creditor repayment plan.
- Improper procedure – The case was not filed correctly, credit counseling courses were not completed, or other procedural error.
- Suspicion of fraud – The filer amassed excessive, recent credit card debt or tried to hide assets prior to declaring bankruptcy.
In rare cases, bankruptcy seekers change their mind and seek a voluntary dismissal. If there is a very compelling reason, such as your circumstances have completely changed, you may be able to have a Chapter 7 filing dismissed. However, seeking dismissal just to avoid losing your assets is not likely to fly. A judge will not allow voluntary dismissal if creditors will be harmed and you have nonexempt assets to repay outstanding debts.
Avoid an Unnecessary Bankruptcy Dismissal
Seeking counsel from a qualified bankruptcy attorney can help you prevent dismissal of your bankruptcy case. You can avoid costly problems by having an attorney file your initial case and guide you through the process.
If you are in the middle of a Chapter 13 bankruptcy, you can sometimes turn a potential dismissal into a favorable discharge by converting to Chapter 7. Conversely, you can also convert a Chapter 7 bankruptcy to Chapter 13 if this is in your best interest.
A Bunch & Brock attorney can help you make the right choice and avoid a damaging bankruptcy dismissal.
