Once you file for Chapter 7 bankruptcy, you don’t have an automatic right to voluntarily dismiss it. Whether you will be allowed to dismiss your Chapter 7 bankruptcy depends on:
- whether you own nonexempt assets
- whether dismissal will prejudice your creditors
- your reasons for wanting dismissal, and
- the policies and procedures in your jurisdiction.
(For information on how Chapter 7 works, see our Chapter 7 Bankruptcy area.)
There Is No Automatic Right to Dismiss a Chapter 7 Bankruptcy
If you file for Chapter 7 bankruptcy, you must be prepared to complete it. Unlike Chapter 13 bankruptcy, there is no automatic right to voluntary dismissal in a Chapter 7 bankruptcy. Generally, you can only dismiss your Chapter 7 bankruptcy if you have a good cause. You can’t dismiss your case simply because you don’t want the trustee to sell your nonexempt assets.
No Dismissal If Creditors Will Be Prejudiced
The moment you file for Chapter 7 bankruptcy, all of your assets become property of the bankruptcy estate. This means that your property is now under the control of the appointed bankruptcy trustee. The trustee has a duty to sell your nonexempt property to pay your unsecured creditors.
If you own nonexempt assets that can be sold to pay your creditors, they will be prejudiced (negatively affected) by dismissal of your Chapter 7 bankruptcy. In that case, the court will typically not allow you to dismiss your case unless you can show cause and an alternative way to satisfy your creditors. (Find out which of your assets are exempt in our Bankruptcy Exemptions area.)
How to Get Your Case Dismissed
Usually, the easiest way to get your Chapter 7 bankruptcy dismissed is to not appear at your mandatory meeting of creditors (also called the 341 hearing). Alternatively, you can also ask the trustee to dismiss your case at the hearing but you will need to explain why you no longer wish to continue with your Chapter 7 bankruptcy. (Find out more about the meeting of creditors.)
If you don’t attend the meeting of creditors (or fail to comply with other bankruptcy requirements such as sending timely supporting documentation to the trustee), the trustee will typically dismiss your case at the 341 hearing. However, as discussed, the trustee will only dismiss your case if you don’t have nonexempt assets and your creditors will not be prejudiced by the dismissal.
You May Have to Obtain Court Permission to Dismiss Your Chapter 7 Bankruptcy
Depending on the rules in your jurisdiction, you may be required to obtain court permission to dismiss your Chapter 7 (by filing a motion with the court) even if you don’t attend your meeting of creditors.
If you have nonexempt assets, dismissing your case will result in prejudice to your creditors because they won’t be getting paid. As a result, you will need to obtain court permission before you can dismiss your Chapter 7 bankruptcy. In most cases, the court will deny your request for dismissal unless you have a compelling reason and can show that you can pay your creditors outside of bankruptcy.
You May Be Able to Convert to Chapter 13 Bankruptcy If You Can’t Dismiss
Even if the court denies your request to dismiss your Chapter 7 bankruptcy, you may be able to convert your case to a Chapter 13 bankruptcy. If you have nonexempt assets, converting your case can allow you to keep your property and pay back a portion of your debts through a Chapter 13 repayment plan. (Learn more about keeping your property through Chapter 13 bankruptcy.)
Unless you are trying to convert your case in bad faith, most courts will allow you to convert if you have regular income and can show that you can afford a Chapter 13 bankruptcy.