I Want Out! What Happens When Your Bankruptcy Case is Dismissed
March 25, 2008
Filing a bankruptcy case is the last thing most people ever consider or even want to do. However, there are times when it is the last chance that people may have to get financial relief from their creditors, save their car, or save their home. Once an individual files a bankruptcy case, they may find that the process is more grueling than anticipated or circumstances arise that may cause them to have a change of heart. Therefore, this may lead people to want out of their bankruptcy cases. However, getting into a bankruptcy is a lot easier than getting out.
When you file a bankruptcy case it is automatically reported to the credit bureaus and may remain on your credit report for a period of ten (10) years. Like a foreclosure or car repossession, this can have a damaging effect financially if you try to secure a loan or get financing. Therefore, it is important when you file a bankruptcy case that you are prepared to see it through and get the relief that is available. But, what happens if you can’t continue any further in the bankruptcy and the case either gets dismissed or you opt to have it voluntarily dismissed?
In many instances, a bankruptcy case is not voluntarily dismissed by the individual that filed the case. Many times, as in a Chapter 13 Bankruptcy case, the case is either dismissed for failure to make payments to the Chapter 13 Trustee to reorganize debt or for not filing or providing the necessary paperwork needed to comply with the case. In a Chapter 7 Bankruptcy case, cases rarely, if ever, get dismissed, and only do so when an individual has completely disregarded filing their documents or attending the mandatory Meeting of Creditors. If a case is dismissed under these circumstances, an individual has the ability to re-file their bankruptcy case to get the protection that they needed, but with limitations. One such limitation is when an individual fails to provide a reasonable explanation for failing to comply with the requirements, and then the individual is barred from re-filing a case for at least 180 days or six (6) months.
There are times though when an individual wants their case voluntarily dismissed. Many times this is because the individual cannot get the relief through the bankruptcy that they could if they were outside of a bankruptcy filing. An example of this is if someone is trying to work out an arrangement with their mortgage company or car creditor and the lender will not help them while they are in a bankruptcy case. Therefore, the individual opts out of the bankruptcy case by filing a Motion to Voluntarily Dismiss. If an individual is in a Chapter 13 case and they file the above motion, they can look to re-file a case within the six (6) month time period as long as they show the need to be out of the present bankruptcy case. This may allow someone to both get their affairs resolved with the lender outside of the bankruptcy case and then re-file in the immediate future to receive protection from their other creditors they originally were protected from.
However, it becomes an issue when an individual wants their case dismissed solely to protect assets that may be administered through their bankruptcy, such as equity in a second home, a lawsuit settlement, lottery winnings, or an inheritance. If an individual tries to file a Motion to Voluntarily Dismiss their case in this type of circumstance, more than likely, the Trustee assigned to their case will almost always object to the Motion filed if the creditors have not already, because the individual is putting their creditors at risk of non-payment. An example of this is when a client receives an inheritance and opts to have the case dismissed because he knows a majority of the inheritance cannot be protected while in bankruptcy and would be subject to having to be paid to his creditors scheduled in the case. If an objection is filed, the individual will have an opportunity to explain why being outside of the bankruptcy will be in his or her best interest, at the same time, why his or her creditors will not be harmed by having the case dismissed. If the individual is successful in his or her Motion, then the case will be dismissed, but the individual will be barred from re-filing a bankruptcy case for at least six (6) months.
Although people do not file bankruptcy with the intent to have their case dismissed, things can arise during bankruptcy cases that are unforeseen. However, the law is not only set up to protect the individual that is filing the bankruptcy, but also the creditors subject to the bankruptcy filing. Therefore, it is always important to understand the circumstances of every action while in a case to be better prepared for the unknown.