When filing bankruptcy for the first time, many people get confused about the different terms lawyers and courts use. Two words that frequently confuse first-time filers are “dismissed” and “discharged.” This article explains each term, what the differences are, and when lawyers and the court are most likely to use them when referring to your case.
What Is a Discharge?
The primary objective of every individual who files for bankruptcy protection is to get an order from the bankruptcy court “discharging” their debts. A discharge is a court order that legally relieves you of the requirement to repay any unsecured debts (including medical bills and credit card debt) you acquired before your bankruptcy.
It’s important to remember that a discharge order doesn’t wipe out all debt. If you owe student loans or priority debts like alimony or child support, you’ll likely have to continue to pay them even with a successful discharge. Still, getting a bankruptcy discharge often helps people improve their financial situation, which may help them pay any remaining debts or bills.
A bankruptcy discharge is a powerful poverty-fighting tool that gives you a fresh start and a second chance at making a living for yourself and your family.
A discharge legally prohibits any of those creditors from suing you or making any other attempts to collect those debts again. A bankruptcy discharge is a powerful poverty-fighting tool that gives you a fresh start and a second chance at making a living for yourself and your family. However, not every bankruptcy ends in a discharge. Also, a discharge doesn’t remove negative history from your credit report; any late payments or non-payments that existed prior to your bankruptcy will still be there after your bankruptcy case is finished. These things, along with the bankruptcy itself, will probably hurt your credit score, and it will take time and effort to repair it.
What Is a Dismissal?
While it may sound similar to a discharge, a bankruptcy dismissal isn’t a good thing. A bankruptcy dismissal means that your bankruptcy has been stopped before the court granted a discharge order. A bankruptcy dismissal occurs when a bankruptcy filer fails to meet a requirement of the Bankruptcy Code. This is known as a deficiency.
Before dismissing your case, the bankruptcy court will provide you with a notice of the deficiency and let you know that it intends to dismiss your case if the deficiency is not cured. It will also tell you how long you have to fix the deficiency before your case is dismissed. If you don’t fix the mistake within the time given, your bankruptcy case will be dismissed and the automatic stay will no longer protect you.
Can I Restart the Bankruptcy Process if My Case Was Dismissed?
If you want to restart your bankruptcy case after it was dismissed, you have to file a Motion to Reinstate. A Motion to Reinstate is a written request to the judge presiding over your case to set aside the dismissal order. Setting aside the dismissal order means they cancel the order.
When you file a Motion to Reinstate, you must also explain how you corrected the deficiency or error that resulted in the dismissal. If you fail to do this in the time allowed by your local court rules, your case will be closed. Once your bankruptcy case is closed you must file a motion or request to reopen the case or file a completely new case.
Common Requirements for a Bankruptcy Discharge
Since the primary objective of everyone who files for bankruptcy is to get debt relief, it’s important to realize that when you file bankruptcy you must comply with all of the requirements under the bankruptcy law to get your discharge. We’ll look now at the requirements for the two most common bankruptcy chapters for consumers.
Chapter 7 Requirements
In a Chapter 7 bankruptcy, this means submitting all of the required documents, paying the filing fee, attending all of the required court dates, and completing the required credit counseling courses. You also need to comply with any requests from the bankruptcy trustee and show up to your creditor’s meeting.
If you fail to meet these requirements and your bankruptcy is dismissed, none of your debts will be discharged and the automatic stay will be lifted. Remember, the automatic stay is what protects you from lenders and debt collectors taking collection actions, including foreclosure or wage garnishment.
Chapter 13 Requirements
In a Chapter 13 bankruptcy, you have to meet the same requirements as above, but with the added responsibility of making all of the payments in your repayment plan on time. If you don’t, and your Chapter 13 is dismissed and subsequently closed, you’ll owe all the debt you owed when you filed. If a dismissal is ever entered in your Chapter 13 bankruptcy case, it’s crucial that you cure the deficiency that caused the dismissal and file a Motion to Reinstate your bankruptcy case as soon as possible.
Dismissals in Chapter 13 vs. Chapter 7
The difference between Chapter 7 and Chapter 13 is that a Chapter 13 bankruptcy typically costs more than a Chapter 7 bankruptcy and takes much longer to complete. Chapter 13 filers must create a Chapter 13 plan to repay a portion of their debt and follow that monthly payment plan for three or five years. Because of this, a Chapter 13 bankruptcy case is much more likely to be dismissed at some point before a discharge is granted. If the filer misses a payment on their repayment plan, it could lead to a dismissal of their case. In fact, missing a payment is the most common cause of dismissal in Chapter 13 cases.
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What Does ‘Dismissal Without Prejudice' Mean?
Unless specifically stated otherwise, every dismissal entered in a bankruptcy case is entered “without prejudice.” Without prejudice is a legal term that means the dismissal doesn’t prevent the person from filing again. But if a dismissal is specifically entered “with prejudice,” it typically means the dismissal can’t be set aside, the case can’t be reinstated, and a new case may be challenged for the same reasons.
Most dismissals with prejudice will include a bar on how long you have to wait before you can file again. This bar can range from 90 days to one year, depending on the situation. Fortunately, almost all dismissals are entered without prejudice.
What Is a Voluntary Dismissal?
In very rare cases, you may want to dismiss your own bankruptcy case. To do so, you must get permission from the court. Whether permission will be granted depends on the type of bankruptcy you filed and why you’re requesting the voluntary dismissal. Typically, most courts don’t allow filers to voluntarily dismiss Chapter 7 bankruptcy cases. This is especially true if the filer is trying to do so to avoid giving up non-exempt property.
A request to dismiss a Chapter 13 bankruptcy, on the other hand, will usually be granted. Although if you’re doing so to avoid surrendering an asset or turning over funds to the court, a bar may be imposed along with the dismissal preventing you from filing bankruptcy again for a specified period of time.
Finally, unlike a bankruptcy discharge which is considered a public record and will remain on your credit report for 7–10 years, a dismissed bankruptcy may not appear on your credit report at all if no discharge was entered.
Learning all the terms associated with the bankruptcy system can be tricky. Filers are usually hoping to get a bankruptcy discharge. That’s the order that wipes out certain debts and gives you a fresh start. A dismissal is very different. It means your case has been stopped before the court granted a discharge. Dismissals most often occur because the filer hasn’t met a requirement under the Bankruptcy Code.