Bankruptcy law is confusing to the novice. The purpose of this blog is to explain the differences between bankruptcy dismissal and bankruptcy discharge.
More often than not, a bankruptcy filing signifies that you are in financial trouble. You want and expect to get a fresh start by having your debt discharged or wiped out. Usually, a discharge stops any collection efforts from your creditors, that is, if your debt is eligible for discharge. However, some bankruptcy filings end up being dismissed or closed by the bankruptcy court. This can happen under three circumstances. First, when you choose not to proceed with your bankruptcy case. Two, you are not able to comply with all the requirements. Or three and worse, you committed bankruptcy fraud.
The Automatic Stay
At the time of dismissal, you will no longer enjoy the protection of an automatic stay. An automatic stay is an order that stops creditors from taking action to collect debts during a bankruptcy case. This means, your collectors can continue or resume all collection efforts against you, including lawsuits, garnishments, foreclosure, and asset seizures. Since there is additional interest and/or penalties accrued from the time of a bankruptcy filing, you will be liable to pay off more than the amount that was due before you filed for bankruptcy.
Voluntary Bankruptcy Dismissal
A voluntary bankruptcy dismissal is still up for approval of a bankruptcy court. Their decision lies on the type of bankruptcy chapter you filed.
It is not easy to ask for dismissal of a Chapter 7 bankruptcy case. When you file for this case, it is best to assume that you cannot back out of it. For example, you changed your mind about proceeding with the bankruptcy filing because you found out you have a lot more to lose than you assumed when you filed for bankruptcy, you request the bankruptcy court to dismiss your case by filing a motion. The court can decline your request especially if creditors will not get a good deal out of dismissing your case.
On the flip side, you may not show up at the 341A hearing so that the court dismisses your case. Non-appearance at this hearing in New Jersey will usually result in the trustee filing a motion to dismiss the case. However, you would be better off having the case dismissed without you voluntarily filing a motion to dismiss. A voluntary dismissal for Chapter 7 case prevents you from refiling a bankruptcy case for 180-days.
It is a different case for voluntary dismissal in Chapter 13 bankruptcy. According to the Bankruptcy code, you can dismiss a Chapter 13 case easily because it is clearly stated:
On request of the debtor at any time… the [bankruptcy] court shall dismiss a case under this chapter . (Section 1307(b) of the Bankruptcy Code.)
Federal bankruptcy law allows the debtor to either dismiss a Chapter 13 case or to convert it to Chapter 7 at any time unless your case has previously been converted from another chapter of the Bankruptcy Code. You can ask for dismissal at any point in your Chapter 13 case, even as soon as you file it, perhaps because of a change of heart. You can also have the bankruptcy court dismiss your case once the payment plan has been approved if your financial situation has improved and find out you do not need a repayment plan anymore. All you need to do to have your Chapter 13 case dismissed is to have your New Jersey bankruptcy lawyer file a motion to dismiss your case. The court cannot keep you in a Chapter 13 case against your will.
Consequences of Chapter 13 Bankruptcy Dismissal
As with Chapter 7 bankruptcy voluntary dismissal, there are also consequences if you dismiss a Chapter 13 bankruptcy. You must be aware that a dismissal will make all unpaid or disputed debts due and demandable. It includes all interest, finance charges, legal fees, all late charges not allowed by the Bankruptcy Court as well as all debts of creditors who did not file their claims. As a requirement, you will be directly deal with the creditors on their terms. There will be no involvement from the bankruptcy court.
For example, your creditors may already file a motion in court to lift the automatic stay if you’re not paying your car loans. When the court lifts the automatic stay, your lender can repossess the car or demand payment.
If you file a motion to dismiss your case before the creditor has filed a motion to lift the stay, you will not be subject to the 180-day bar. However, if you filed for voluntary dismissal after the creditor has filed its motion to lift the stay, you can’t file another bankruptcy case for 180 days. This rule is in place to discourage debtors from dismissing a case then filing another just to restore the automatic stay after the same has been lifted as a result of a motion filed by a creditor.
Bankruptcy Dismissal by the Court
This happens when the debtor failed to meet the requirements due in the case filed. It can also happen when the debtor has filed in bad faith. Failure to do the following can be grounds for dismissal:
- File the required forms and supporting documents
- Pay the court filing fees
- Pass the means test
- Complete the required courses (credit counseling course and debt management course)
- Attend the 341 meeting or the meeting with creditors
- To keep up with the Chapter 13 payment plan
- Accurately disclose all of your income, assets, liabilities, and other required financial information, which constitutes as bankruptcy fraud
In most situations, except for dismissal with prejudice, you can counter the trustee’s motion to dismiss. You must submit the required or correct documents and completing the requirements.
Can I File Another Bankruptcy Case?
If your bankruptcy case has been dismissed by the court, you can file another one as long as your case was dismissed without prejudice. This means there is no restriction period before you can file a new case. However, if your bankruptcy case was dismissed with prejudice because there was either an obvious attempt to cover up or hide your assets, your case was filed in bad faith, or there was blatant abuse of the bankruptcy system, you may be prohibited from filing another bankruptcy for a certain period of time or forever barred from discharging any of the debts existing at the time of your first filing.
If you are considering filing bankruptcy in New Jersey, contact Karina Lucid Law for a free initial consultation. We will tell you need which type of filing would be best for you. If bankruptcy is indeed your way to a fresh start, you need to do it right from the get-go. An experienced bankruptcy lawyer will ensure that you are not wasting valuable resources in your time of need. Contact us today!