What Is the Difference Between a Bankruptcy Dismissal and Discharge?

If you file a bankruptcy case, you're likely overburdened with debt that you'd like to wipe out (discharge). In most cases, you'll receive your discharge prohibiting creditors from collecting qualifying debts after your case concludes without a hitch. But if you change your mind and don't want to go through with the case, or you have trouble fulfilling all the requirements, the court can close (dismiss) your case without giving you a discharge. Read on to learn about voluntary and involuntary dismissals.

Requesting a Voluntary Bankruptcy Dismissal

You can always ask the court to dismiss your case, but what will happen will largely depend on the bankruptcy chapter filed.

Chapter 7 Bankruptcy

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.

Chapter 13 Bankruptcy

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.

Facing an Involuntary Dismissal

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:

• file the bankruptcy schedules and other forms on time
• submit 521 documents, like tax returns
• pay the court filing fee
• attend the 341 meeting of creditors
• make all Chapter 13 plan payments
• stay current on child support or alimony during the case
• provide complete and truthful information in your paperwork
• pass the means test, and
• file a certificate showing that you completed credit and debt counseling.

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.

Filing Again After a Dismissal

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.