Many individuals filing bankruptcy for the first time are unsure of the terminology used by lawyers and the courts. Two words that frequently confuse first-time filers are “dismissed” and “discharged.” The purpose of this article is to explain the difference between the two 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 obtain an order from the bankruptcy court “discharging” their debts. A discharge is an order of the court that legally relieves you of the requirement to repay any debts incurred before your bankruptcy. 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 you and your family. However, not every bankruptcy ends in a discharge and a discharge does not remove the negative history of late payments or non-payments that existed prior to your bankruptcy.
What Is A Dismissal?
While it may sound similar to a discharge, a bankruptcy dismissal is not a good thing. A bankruptcy dismissal means that your bankruptcy has been halted prematurely without a discharge being granted. A bankruptcy dismissal occurs when a debtor fails to meet a requirement of the Bankruptcy Code that pertains to their case. 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 do not fix the mistake within the time given, your bankruptcy case will be dismissed and the automatic stay will no longer protect you. If you want to restart your bankruptcy case after it was dismissed, you have 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 - or cancel - the dismissal order. It typically must also include an explanation that the deficiency or error that resulted in the dismissal has been corrected. Failure to do so within the time allowed by your local court rules will result in your case being closed. Once your bankruptcy case is closed you must file a motion or request to reopen the case or file a completely new case.
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. Because of this, a Chapter 13 bankruptcy case is much more likely to be dismissed at some point in time before a discharge is granted. The most common cause of the dismissal being failure to make the required repayment plan payment when due.
Since the primary objective of everyone who files for bankruptcy is to obtain debt relief, it is important to realize that when you file bankruptcy you must comply with all of the requirements given to you to obtain your discharge. In a Chapter 7 bankruptcy this means submitting all of the required documents, attending all of the required court dates and completing all the required bankruptcy counseling. If you do not, and your bankruptcy is dismissed none of your debts will be discharged and your automatic stay will be lifted.
In a Chapter 13 bankruptcy this means doing all of the above, as well as 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 still owe all the debt you owed when you filed. As a result, if a dismissal is ever entered in your bankruptcy case, it is extremely important that you cure the deficiency that caused the dismissal and file a “Motion to Reinstate” your Chapter 13 bankruptcy case as soon as possible.
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 won’t prevent the person from filing again. If a dismissal is specifically entered “with prejudice” on the other hand, it typically means the dismissal cannot be set aside, the case cannot be reinstated and a new case may be challenged for the same reasons. In addition, most dismissals “with prejudice” will impose 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.”
In very rare instances you may want to dismiss your own bankruptcy case. However, to do so, you must obtain permission from the court. Whether permission will be granted depends on the type of bankruptcy you have filed and why you are requesting the voluntary dismissal. Typically most courts will not allow you to voluntarily dismiss a Chapter 7 bankruptcy case especially if you are doing so to prevent having to give up non-exempt property. A request to dismiss a Chapter 13 bankruptcy, on the other hand, will usually be granted. Although if you are 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 from seven to ten years, a dismissed bankruptcy may not appear on your credit report at all if no discharge was entered.
Learn More About Chapter 7 Bankruptcy
If you would like to learn more about Chapter 7 bankruptcy and how you can put an end to harassing calls from your creditors, remove garnishments from your pay or get from under onerous payday loans, Upsolve can help. Upsolve has helped over 2,000 families clear an average of $52,382 in debt each through Chapter 7 bankruptcy. And we have referred even more individuals to experienced bankruptcy attorneys willing to help them navigate their way through Chapter 13 bankruptcy.