What Is the Difference Between a Bankruptcy Dismissal and Discharge?

If you've recently received a notice stating your bankruptcy case was dismissed, you likely want to know what it means. If your bankruptcy case was closed early or "dismissed," read on to learn about the consequences of dismissed bankruptcies, the differences between voluntary and involuntary dismissals, and whether you can refile your Chapter 7 or 13 bankruptcy.

What Does It Mean When a Bankruptcy Is Dismissed?

If you file a bankruptcy case, you're likely overburdened with debt you'd like to wipe out or "discharge." Normally, you receive your discharge prohibiting creditors from collecting qualifying debts after your case concludes without a hitch. The typical Chapter 7 process takes approximately four months, while a Chapter 13 case can take three- to five-years to complete.

But if you change your mind and don't want to go through with the case, you can voluntarily ask the court to close your case early before receiving a discharge. If you have trouble fulfilling all the requirements or commit wrongdoing, the court can dismiss your case involuntarily without giving you a discharge.

Requesting a Voluntary Bankruptcy Dismissal

You can ask the court to dismiss your case, but it won't automatically be granted. What will happen depends on the bankruptcy chapter filed.

Chapter 7 Bankruptcy

When you start a Chapter 7 bankruptcy, you should assume you won't be allowed out of it because dismissing a Chapter 7 case isn't easy. The court must agree to the dismissal and won't if it isn't in the best interests of your creditors.

For instance, suppose you discover that you'll lose more of your property than you thought when you filed the case. You can file a motion asking the court to let you out of the case.

However, the court 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. The case will continue, and the Chapter 7 trustee will sell the property you didn't realize you'd lose and distribute the funds to creditors.

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 proceed 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 decide to dismiss a Chapter 13 bankruptcy. For instance, when you refile, the automatic stay protections against creditor collections will be lessened. The rule discourages debtors from dismissing the case and immediately filing another matter to restore the automatic stay.

For instance, if you file twice within a year, the stay will last 30 days. Learn about multiple bankruptcy filings and how repeat filings affect the automatic stay.

Also, if you dismiss the first case after a lender files a motion asking the court to lift the automatic stay, perhaps requesting to resume foreclosure, you can't file another bankruptcy case for 180 days.

Facing an Involuntary Dismissal

Before qualifying to get debts discharged in bankruptcy, you must follow many rules. If you don't do everything you must, 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.

In many situations, you can counter the trustee's motion to dismiss by providing required documents, correcting paperwork, or ensuring that you meet the missing requirement.

Filing Again After a Dismissal

If your bankruptcy case gets dismissed, you might refile another one shortly after. In many cases, that won't be an issue if the case is dismissed without prejudice, meaning that the dismissal doesn't restrict 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.