You'll find a complete overview of the bankruptcy process in Filing For Bankruptcy.
When most people file for bankruptcy, the goal is to obtain a discharge (forgiveness) of debt. But that doesn’t always happen. A bankruptcy dismissal closes your bankruptcy case, and if it occurs before you receive a discharge, it will mean that:
The process starts when the debtor, trustee, or creditor files a motion requesting the dismissal. But, just because you ask for a voluntary dismissal, or another party asks for an involuntary dismissal, doesn’t mean that the court will grant the request and close the case. The court’s decision will depend on a number of factors, including the reason for the request, whether you filed a Chapter 13 bankruptcy or a Chapter 7 case, where you’re at in the bankruptcy process, and how the dismissal will affect your creditors.
(For detailed information about the different dismissal types, read What Is the Difference Between a Bankruptcy Dismissal and a Discharge?)
Bankruptcy cases get dismissed for a variety of reasons ranging from intentional misconduct (such as fraud) to simply failing to file the correct forms with the court. Below are some of the most common reasons the court might dismiss your bankruptcy case.
When you complete your bankruptcy papers, you must tell the truth and accurately disclose all of your income, assets, liabilities, and other required financial information. Bankruptcy fraud is a serious offense that can result in the loss of your discharge, criminal fines, and incarceration. If you lie on your bankruptcy papers or otherwise commit fraud, the court will typically dismiss your case, deny your discharge, and report you for further investigation.
Your disposable income must be low enough to pass the means test before you qualify for a discharge. The bankruptcy means test compares your average income for the six-month period before filing your case against the median state income for a similar household.
If your income is below the state median, you qualify automatically. However, if it is above, you still might qualify. You’ll be allowed to deduct the national and local living expense standards for your area (as well as some of your actual expenses) to determine whether you qualify. If you fail the means test, the court will likely either dismiss your Chapter 7 bankruptcy or give you the option to convert to a Chapter 13 case.
(Find comprehensive information about the means test in Chapter 7 bankruptcy.)
Bankruptcy law requires all debtors to complete a credit counseling course before filing a case and a debt management course before receiving a discharge. When you finish each course, you’ll receive a certificate of completion to file with the court. If you don’t file either certificate promptly, the court will dismiss your case. (Learn more in Credit Counseling & Debtor Education Requirements in Bankruptcy.)
If you want to file for bankruptcy, you must pay a filing fee to the court for the administration of your case. In Chapter 7 cases, if you have little or no income, you may apply for a waiver of your court fees. The court will take into account your income and expenses when granting or denying your waiver. Unless you receive a waiver, the court will dismiss your case if you fail to pay the required filing fees.
Filing for bankruptcy requires disclosing all of your financial affairs to the court. You must fill out a set of bankruptcy forms including a bankruptcy petition, schedules, and other required forms. If you fail to file all required forms, the court will dismiss your case.
After filing your case, you are also required to submit certain supporting documents to the trustee such as tax returns, pay stubs, and other documents to verify the information in your bankruptcy papers. Each trustee has different supporting documentation requirements. However, at a minimum, you must submit your most recent federal tax return to the trustee at least one week before your meeting of creditors (also called the 341 hearing), along with paycheck stubs, and bank account statements. Failure to submit all required documents may result in dismissal of your case.
(Find out about the bankruptcy forms and other documents you must file in bankruptcy.)
When you file for bankruptcy, you must attend a mandatory hearing called the meeting of creditors. The purpose of this hearing is to allow the trustee and your creditors to ask you questions under oath about your bankruptcy papers and financial affairs. You’ll also present proof of your identification. In general, the meeting of creditors will last only a few minutes, and creditors rarely show up. But if you fail to attend your meeting of creditors, the trustee will likely ask the court to dismiss your bankruptcy case.
(Find articles on the Meeting of Creditors in Bankruptcy.)
In Chapter 13 bankruptcy, you can keep all of your property (but this isn’t a freebie—you’ll have to pay for the nonexempt portion), but you must pay back some or all of your debts through a Chapter 13 repayment plan. Chapter 13 plans typically last three to five years, and the court will enter your discharge upon successful completion of all plan payments. If you stop making your Chapter 13 plan payments, the court will typically dismiss your bankruptcy.
]]>Read on to learn more about what happens if the court dismisses your case without prejudice and how the dismissal can affect the automatic stay in your next bankruptcy filing.
For more information about what to do if the court dismisses your bankruptcy, see When Your Bankruptcy Case Is Dismissed.
When you file for bankruptcy relief, you must satisfy certain requirements to complete your case and obtain a discharge. If you don’t complete all the necessary steps, the court can dismiss your case with or without prejudice.
While it can be frustrating to have your bankruptcy case dismissed, a dismissal without prejudice is much better than one with prejudice. If the court dismisses your bankruptcy without prejudice, it means that you can immediately file another bankruptcy case (as long as you are otherwise eligible). Luckily, unless you abuse the bankruptcy process or willfully disobey court orders, most bankruptcy dismissals are without prejudice.
In most cases, if you make a procedural mistake (and aren’t trying to abuse the bankruptcy system), the court will dismiss your bankruptcy without prejudice. Except in rare circumstances, the court will typically dismiss your case without prejudice if you:
To learn more about why the court might dismiss your bankruptcy, see Reasons the Trustee or Court Might Dismiss Your Bankruptcy Case.
When you file for bankruptcy, an automatic stay goes into effect that prohibits most creditors from starting or continuing collection activities. Bankruptcy laws impose certain limits on the automatic stay if you file multiple bankruptcy cases. The rules discourage debtors from filing for bankruptcy simply to delay or hinder their creditors.
Here’s how it works.
If the court dismisses your bankruptcy case and you file another case within one year, the automatic stay in your new bankruptcy will expire 30 days after your filing date. If you had two or more pending bankruptcies that the court dismissed within the past year, you wouldn’t get any automatic stay benefit if you refile.
However, it’s possible to get the court to put the stay in place. If you have a good reason for the new filing—or why the previous filings occurred—then you can file a motion with the court asking for the automatic stay. The court will grant your motion if you prove that you filed the case in good faith.
For more information on how the automatic stay works and how to file a motion to extend or impose the stay, see Bankruptcy’s Automatic Stay.
]]>A Chapter 7 bankruptcy case isn’t like other court cases. If you file for Chapter 7 bankruptcy, you must be prepared to complete it because, unlike Chapter 13 bankruptcy, you don’t have the right to back out.
Generally, you can only dismiss your Chapter 7 bankruptcy if you have a good reason (good cause). For instance, if you find out that you’ll lose property that you thought you could keep, you can’t simply dismiss your case. However, if you find yourself in a bind, talk to a bankruptcy lawyer—an attorney might find an issue that rises to the level of good cause. But again, don’t count on it.
(Learn about property you can and cannot keep in Chapter 7 bankruptcy by reading What Is Exempt Property?)
The moment you file for Chapter 7 bankruptcy, all of your assets become property of the bankruptcy estate under the control of the appointed bankruptcy trustee. The trustee must sell your nonexempt property—the property you’re not entitled to keep—to pay your unsecured creditors.
If you own nonexempt assets that can be sold to pay your creditors, the creditors will be prejudiced (negatively affected) by dismissal of your Chapter 7 bankruptcy. They won’t get paid. 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.
(For more information about exempt assets, see Bankruptcy Exemptions.)
In bankruptcy court, your financial interests will be of lesser importance than those of your creditors. That’s not to say that you’ll never receive permission to dismiss your case—it can happen. However, 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.
Even if the court denies your request to dismiss your Chapter 7 bankruptcy, there’s a chance that you’ll be able to convert your case to a 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.
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.
]]>You can always ask the court to dismiss your case, but what will happen will largely depend on the bankruptcy chapter filed.
Dismissing a Chapter 7 case isn’t easy. In fact, when you start a Chapter 7 bankruptcy, you should assume that you won’t be allowed out of it.
For instance, suppose that you discover that you’ll lose more of your property than you thought you would when you filed the case. You can file a motion asking the court to let you out of the case. The court, however, doesn’t have to dismiss it just because you want to get out. If dismissing the case isn’t in the best interest of your creditors—which it probably won’t be if they’ll get money out of the deal—then the court will probably refuse to do so.
If you file a Chapter 13 bankruptcy, you’ll have an easier time backing out of it. In many jurisdictions, you can notify the court that you no longer want to go through with the case. In others, you must file a motion that the judge can grant, but generally speaking, the court cannot keep you in a Chapter 13 case against your will.
However, you should be aware that you can face some difficult consequences if you do decide to dismiss a Chapter 13 bankruptcy. For instance, if you’re not paying your car loan, the lender will file a motion asking the court to lift the automatic stay, the order that prohibits creditors from taking action to collect debts during a bankruptcy case. After the court grants the motion and lifts the stay, the creditor can repossess the car or demand payment.
If you file a motion to dismiss your case after the creditor has filed its motion to lift the stay, you can't file another bankruptcy case for 180 days. This rule discourages debtors from reacting to a motion to lift the stay by dismissing the case and immediately filing another matter to restore the automatic stay.
Before you qualify to get debts discharged in bankruptcy, you have to follow many rules. If you don’t do everything that you’re required to do, including being honest and cooperating with the bankruptcy trustee, your case might get dismissed before you receive a discharge.
Here are some of the events that can prompt a motion to dismiss from the bankruptcy trustee (the official responsible for handling your matter) or creditor if you fail to do them:
Your case might also get dismissed if you file multiple cases within in a short period.
In many situations, you can counter the trustee’s motion to dismiss by providing required documents, correcting paperwork, or otherwise ensuring that you meet the missing requirement.
If your bankruptcy case gets dismissed, you might choose to refile another one shortly after that. In many cases, that won’t be an issue if the case was dismissed without prejudice, meaning that the dismissal doesn’t include a restriction on how long you’ll have to wait before you can file a new case.
If the court finds that the reason for the dismissal is particularly serious or that you’ve abused the bankruptcy system, the court can order the case dismissed with prejudice. In that case, you’ll be prohibited from filing a new case for the period specified in the order, usually 90 days to one year. The time limit can be for any length including a permanent injunction that precludes you from ever filing another bankruptcy case.
]]>Here's when you can reopen your case, and how to do it.
Here are some of the common reasons you might need to reopen your bankruptcy case.
Every bankruptcy debtor is required to take a pre-bankruptcy credit counseling course before filing a case, as well as a post-bankruptcy course after filing. Once you take the course, you must file a certificate with the court showing that you took the course. If you fail to file this certificate, the court may close your case without a discharge. Fortunately, you can reopen your case for the purpose of filing this certificate.
(To learn more, see Credit Counseling & Debtor Education Requirements in Bankruptcy.)
When you file bankruptcy, you must file a schedule listing everything you own, including property you are entitled to but have not yet received. (To learn more, see Completing the Bankruptcy Forms.)
If you fail to list valuable property in your schedules and the case is closed, you must reopen the case and file amended schedules listing the property and exempting it. The trustee may also reopen the case for this purpose.
Example 1. If your name is on the title to a vehicle but you forgot you owned it because your brother drives it, and the bankruptcy court discharges and closes your case without your disclosing the vehicle, you will need to reopen the case to disclose your ownership interest in the vehicle.
Example 2. If you get hurt before you file for Chapter 7, or before or during a Chapter 13, the proceeds from any personal injury claim or lawsuit (whether from a judgment or settlement) becomes part of the bankruptcy estate, subject to any applicable exemptions. You are required to list any potential claim (even if you haven't yet filed a lawsuit) in your bankruptcy papers. If you don't, and your bankruptcy case is closed, you should immediately reopen your case to add the claim or lawsuit. Otherwise, the defendant in your lawsuit could try to dismiss the lawsuit on the basis that the bankruptcy trustee should have been the plaintiff, not you. Also, purposeful failure to disclose property in your bankruptcy schedules is an act of fraud as well as perjury (you sign your paperwork under oath).
If you fail to list a particular creditor in your bankruptcy paperwork, that creditor will not receive notice of the bankruptcy and may attempt to collect after the case is closed and discharged. You can reopen your case to add the creditor. In a Chapter 7 case, this may cause your case to linger several months longer to allow the added creditor time to object to discharge. In a Chapter 13 case, this may mean you will have to pay more money to provide that creditor with the percentage to which it is entitled.
You can reopen a bankruptcy case by filing an ex parte motion that describes why you want to reopen the case. An ex parte motion is a motion that the judge will review right away without notice to any other parties. You must submit a proposed order with the motion. Once the court enters the order, you must act quickly to take the measures you proposed to take in the motion.
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