Why do Bankruptcy Cases get Dismissed?

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Filing a bankruptcy case, even for the most straightforward case, is a complex process with a lot of moving parts. If a case is not filed properly, the case is at risk for being dismissed. When a bankruptcy case is dismissed it is important to understand what led to the dismissal so that if you choose to file again you can be successful in the future. In this article we will explain what it means for a case to be dismissed, explore the various types of dismissal and discuss the multitude of reasons it can happen and how to move forward.

  • What does it mean if a case is dismissed?

    • Consequences of dismissal

    • Process for dismissal

  • Types of dismissal

    • Dismissed without prejudice

    • Dismissed with prejudice

  • Reasons for dismissal

    • Failure to meet eligibility requirements

    • Procedural

    • Fraud

What does it mean if a case is dismissed?

When a case is dismissed that means that it will not continue on to a successful discharge, which is the expected goal to filing a case. Dismissal of a case has two main results - loss of the automatic stay and continued responsibility for debt.

Consequences of dismissal

The automatic stay is the protection that filing a bankruptcy offers. The automatic stay stops any collection actions by creditors (lawsuit, wage garnishment, repossession, foreclosure etc.) as soon as the case is filed, accounting for the “automatic” in automatic stay. Rather than being relieved of your obligations to pay your debt back, you will once again have the weight of those debts on your shoulders, likely with more late fees and a higher amount owed.

Process for dismissal

Before a case is dismissed, a party to the case files a motion to dismiss the case. The party filing this motion is most often the trustee or a creditor, as the result of an error on the petition, or a deficiency of some sort. Keep in mind though that “party” can also include the debtor, which is the person filing the case, by requesting a voluntary dismissal.

If you file for a chapter 7 bankruptcy you do not have an automatic right to dismiss the case. You are not able to dismiss the case if creditors will suffer. You would need to show cause to do so, or instead file a motion to convert to a chapter 13 if the circumstances warrant it (i.e. you are facing losing property that you did not anticipate losing). In a chapter 13 it is more likely you can voluntarily dismiss the case without cause, but either way it is important to make certain that you have thought through your decision to file a case in advance.

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Types of dismissal

There are two types of dismissal which can occur. It is very important to understand the difference as it impacts your ability to refile the case.

Dismissed without prejudice

Most typically you are going to see a case dismissed “without prejudice”. That means chances are the case was dismissed for procedural reasons, and that you can immediately refile. Do keep in mind, however, that the automatic stay is impacted by repeated filings. If you file another case within a year of the first filing, the automatic stay will only last for 30 days. If you have filed more than one case in the prior year then the automatic stay will not attach when the new case is filed. If you find yourself in this situation you will need to file a motion to extend or impose the automatic stay to explain the reasons the automatic stay should be extended or imposed.

Dismissed with prejudice

It is much less common to see a case dismissed with prejudice, but if this does happen the consequences can be much more severe. When a case is dismissed with prejudice you can be barred from filing another bankruptcy for a specified period of time (usually 180 days), or even more harshly, prohibited from discharge of any of the debts existing at the time of your first filing.

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Reasons for dismissal

There are three main reasons for dismissal - first that you do not meet the eligibility requirements to file, second that there was a procedural error and third that the case involves fraud or was filed for fraudulent purposes.

Failure to meet eligibility requirements

The first category of reasons for dismissal we will explore is a failure to meet eligibility requirements. This can mean a failure to be eligible for the chapter of bankruptcy you file, most commonly if you fail the means test and still file a chapter 7. There could also be a timing issue such as filing a new case too close in time to when you filed the previous case.

If you are filing a chapter 13 you would not be eligible if you exceed the debt limit, although this is pretty rare. More commonly a chapter 13 would be dismissed if you are unable to get the chapter 13 plan confirmed by the trustee and/or creditors within a reasonable time period.

In these instances the case will be dismissed without prejudice and you can take the opportunity to correct the mistakes and refile appropriately.

Procedural

The second category and most likely reason for a dismissal is if there is a procedural failure. This can refer to both a failure to comply with Federal Bankruptcy rules and procedures or local rules and guidelines. For either chapter of bankruptcy you case might get dismissed if you do not file all the required documents, or if you fail to pay the filing fees, if you miss one or both of the required debtor education courses, or if you fail to appear for your Section 341 Meeting of Creditors.

Additionally if you do not provide the appropriate supporting documents to your petition or fail to file requested amendments (more likely in a chapter 7), you may face dismissal. In a chapter 13 your case will be dismissed if you are not making your chapter 13 plan payments to the trustee or if your plan itself is infeasible. You can also face dismissal in a chapter 13 if you are a “serial filer”, i.e. filing case after case to take advantage of the protections without the intent of following through on a workable plan.

Fraud

Finally, the instance where you are most likely to face a dismissal with prejudice is if there are more egregious reasons than failure to comply with procedure, such as fraud. Beyond fraud this can also include filing multiple cases in bath faith, disobeying court orders and abusing the bankruptcy system.

Always remember that you are filing your paperwork under the penalty of perjury, i.e. you are testifying in the paperwork (and at your hearings) that the content is truthful and accurate to the best of your knowledge. If it turns out that you deliberately excluded a debt or otherwise tried to get away with something not allowed under the rules, your case will be dismissed with prejudice. Bankruptcy fraud can also result in criminal fines and incarceration.

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Conclusion

There are many reasons why a bankruptcy case can be dismissed, but if you follow the steps and guidelines through Upsolve and make certain you fully disclose all the relevant information in your paperwork you should be able to avoid a dismissal and instead achieve the desired discharge to set you on the path to your fresh start.

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