What Happens to the Automatic Stay if My Bankruptcy Case Is Dismissed?

One of the biggest benefits of filing bankruptcy is the automatic stay. It goes into effect as soon as you file and temporarily keeps most of your creditors from pursuing collections activities against you. The automatic stay protects your assets during bankruptcy. This gives creditors a fair chance to recover at least some money or property to apply to your debts if you have non-exempt property. And the debts that don’t get paid off will often get discharged. 

But what happens if your Chapter 7 or Chapter 13 bankruptcy case gets dismissed before everything is complete? The short answer is that the automatic stay is gone and debt collectors and creditors can resume their debt collection efforts against you. In this article, we’ll take a look at the options you have if your case gets dismissed. But before we get to that, let’s first look at what it means for a bankruptcy case to get dismissed. 

What Does it Mean When a Bankruptcy Case Gets Dismissed?

When a bankruptcy case is dismissed it means the bankruptcy court has ended the proceedings before granting a discharge. A case dismissal isn’t the same as a discharge or having your case closed.

A discharge means you no longer have to pay your dischargeable debts. In contrast, a bankruptcy dismissal means your bankruptcy case was thrown out. To put it in basic terms from the perspective of a bankruptcy filer: A discharge is good and dismissal is bad.

A bankruptcy dismissal is also different from the court closing a bankruptcy case. A court will close a bankruptcy case when any pending activities in the case are complete. In other words, the trustee has completed all of their tasks and there are no pending motions.For instance, after a Chapter 7 discharge, it might seem like the bankruptcy case is done. But there could still be tasks the trustee needs to complete, like sell assets from the bankruptcy estate. Once those “loose ends” get taken care of, the bankruptcy case can finally close.

One thing to remember is that a bankruptcy case can be closed even if there hasn’t been a discharge. If this happens, it’ll be like the filer never declared bankruptcy, at least from the perspective of the lenders trying to collect the filer’s debts. But one major change for the filer is that the bankruptcy filing will show up on their credit report.

Who Can Dismiss a Bankruptcy Case?

The bankruptcy filer, trustee, judge, or a creditor can request a bankruptcy case dismissal. No matter who requests that the case be dismissed, the court must approve the request. That includes dismissals requested by the bankruptcy filers themselves.

It might sound odd that the court has to give you permission to end your case. But this process is in place so that filers don’t end the bankruptcy proceeding for reasons that might hurt one or more creditors. 

For instance, say a Chapter 7 bankruptcyfiler finds out that the bankruptcy trustee wants to sell a particular asset the filer wants to keep. If the filer asks for a dismissal to prevent the sale from happening, the court might deny the dismissal. If the court does grant the filer’s motion to dismiss their case, there may be other consequences. For example, there could be limitations on using the automatic stay in a future bankruptcy case.

If the dismissal comes at the request of a trustee, creditor, or the court itself, then the filer loses their case. What’s worse is that they’re also barred from filing another bankruptcy case for 180 days unless they file a motion to obtain special permission.

Bankruptcy Cases Can Be Dismissed With or Without Prejudice

If a bankruptcy case gets dismissed, it can occur with or without prejudice. If a case is dismissed with prejudice, the case is thrown out and the filer can’t file bankruptcy again for a certain period of time. In cases that are dismissed without prejudice, the filer can immediately file a new bankruptcy petition. Most bankruptcy dismissals are without prejudice.

Dismissal Without Prejudice

Luckily, many bankruptcy cases that are dismissed without prejudice are due to procedural issues. This means they usually aren’t difficult to fix. But before reinstating the dismissed case or filing a new one (more on this soon), the filer needs to understand why the court decided to dismiss the first bankruptcy case. Making the same mistake again will just cost you time and money! 

If your case was dismissed without prejudice due to a procedural issue like missing paperwork, try not to let it get you down. You can learn from it and file again. As mentioned earlier, if your bankruptcy case gets dismissed, the automatic stay is lifted. So you’re no longer protected from debt collectors or your creditors’ collection actions. Any debt collection lawsuits, foreclosures, evictions, or wage garnishments that were on hold can now be resumed. The debt collection letters and telephone calls may also start back up again.

Dismissal With Prejudice

Bankruptcy cases usually don’t get dismissed with prejudice unless the filer misbehaves. This is less common, but it does happen. Misbehavior could include a filer abusing the bankruptcy process, lying on their bankruptcy filings, trying to trick creditors, or intentionally disobeying court orders. A filer who is generally acting in bad faith could have their case dismissed with prejudice. 

Reasons a Court Might Dismiss a Bankruptcy Case

To successfully file bankruptcy and obtain a discharge, you have to fill out a lot of forms. There are also other requirements, like attending the 341 meeting of creditors. If you fail to provide all the necessary documents or fulfill other requirements, your case could be dismissed.

Below are some common reasons bankruptcy cases get dismissed.

• Not taking an approved credit counseling course before filing bankruptcy.

• Filing an incomplete creditor matrix. This is a list of creditors and their addresses.

• Not paying the necessary filing fees. Waivers and fee installment plans are possible, but filers must complete additional paperwork for this and have it approved by the court..

• Forgetting to complete the Statement About Your Social Security Number (Official Form 121).

• Not providing necessary supporting documents (like tax returns) to the bankruptcy trustee.

• Missing a plan payment in a Chapter 13 bankruptcy case.

• Failing the Chapter 7 means test if you’re trying to file Chapter 7e (assuming you don’t want your Chapter 7 converted to a Chapter 13).

Most of these reasons will likely lead to a dismissal without prejudice. But a dismissal with prejudice is possible if the filer acted in bad faith, such as lying under oath or defrauding creditors. 

If you find yourself with a dismissed bankruptcy case and you still want to declare bankruptcy (and take advantage of the automatic stay), you usually have the option of either reinstating your bankruptcy case or filing a new one.

Reinstating a Bankruptcy Case

As long as your case hasn’t been closed, you can ask the court to reinstate the case by filing a Motion to Reinstate. The court doesn’t have to grant your request, but it may do so if you can explain how you fixed the problem that led to the dismissal. If the court grants your motion, then you can resume your bankruptcy case. This includes enjoying protections from the automatic stay.

Because of how long Chapter 13 cases can last due to the repayment plan, reinstatement is often used in Chapter 13 cases. For example, you might miss a monthly payment during year two of the repayment plan. If the case gets dismissed, it makes a lot more sense to reinstate the Chapter 13 case and pick up where you left off with payments instead of starting the Chapter 13 bankruptcy proceeding from scratch. 

Filing a New Bankruptcy Case

As the name implies, this is where you start over with your bankruptcy. If the dismissal came at the request of the trustee, a creditor, or the court itself, then you can’t file a second case until 180 days have passed. If the court dismissed your bankruptcy case with prejudice, you may be subject to a different time limit. If these two situations don’t apply, then you can usually file a new bankruptcy petition right after the court dismisses your prior bankruptcy case.

Depending on when you last filed bankruptcy, you could have a new bankruptcy proceeding as if nothing ever happened. This includes getting back your automatic stay. But in certain situations, filing bankruptcy again may not give you a new automatic stay or if it does, it could be limited.

If you file a new bankruptcy petition within 12 months of the previous case dismissal, the automatic stay only lasts 30 days. And if you’ve filed two bankruptcies in the past 12 months, then you don’t get the automatic stay at all for your third bankruptcy.

If you’re limited to a 30-day automatic stay or aren’t eligible for one at all, it’s still possible to request one from the court. In your request, you’ll have to explain why you have a good reason for filing bankruptcy again and using the automatic stay. There’s a reasonable chance the court will apply a full or extended automatic stay if you can show that you’re filing bankruptcy in good faith and not trying to abuse the bankruptcy system. It might be a good idea to get some legal advice from a bankruptcy lawyer who can assist in this process.

Let’s Summarize…

Bankruptcy cases can end in several ways, including discharge, dismissal, and getting the case closed. Most bankruptcy cases that get dismissed are the result of the filer forgetting to meet one or more bankruptcy requirements. If your case gets dismissed, your debts won’t be discharged and the automatic stay goes away. This means debt collection activities can resume.

After getting a case dismissed, you can still make use of the bankruptcy process if the dismissal was the result of an honest or reasonable mistake. In most cases, you’ll either file a new case or file a motion to reinstate the previous one. If filing a new case, there could be limits on your ability to get the automatic stay unless you can explain to the court that you’re not trying to abuse the bankruptcy process. When asking the court to reinstate your case, the court may reinstate the automatic stay if they also reinstate your bankruptcy case.