A bankruptcy dismissal happens when something goes wrong and the bankruptcy court rejects your case. There are many reasons this can happen and many consequences. The word “dismiss” shouldn’t be confused with discharge, which is when certain debts are eliminated. Instead, dismissal means that the bankruptcy case has been thrown out. The petition has failed. There is no longer a case. With almost all dismissals, the petitioner has wasted their time, although usually, one can try again soon, or after a waiting period. A bankruptcy attorney can help you rectify the issue.
Filing for bankruptcy is a complicated process with many steps, forms, rules, and criteria for eligibility. The stresses of declaring bankruptcy can contribute to easy mistakes. One single mistake with any aspect of the bankruptcy process can be grounds for dismissal, so there is a lot of room for error. Also, because bankruptcy provides a much-desired relief, some candidates attempt to misrepresent their situation. This is grounds for a type of dismissal that has more serious consequences than dismissals related to honest mistakes.
Causes of Bankruptcy Dismissal
Here are some specific reasons your bankruptcy case might be dismissed:
• Failure to comply with court rules
• Procedural violations
• Failure to fulfill credit counseling or pass a means test
• Jurisdiction or residence issues
• Lack of timeliness in filing documents and forms
• Insufficient documentation
• Fraud against creditors, lenders, or courts
• Failure to make court appearances or attend creditors meetings
• Failure to pay the court filing fee or installment payments
• Prior cases, prior dismissals, and prior discharges
• Failure to make timely plan payments in a Chapter 13 bankruptcy case
Effects and Consequences
When a bankruptcy petition is dismissed, all the time, money, and effort that went into the filing is lost, including the lawyer’s fees. Your debts are not discharged, or your payments are not restructured.
Filing bankruptcy grants you an automatic stay against creditors, but when your bankruptcy case is dismissed, this is lifted and you’re back where you started. It’s important to note that despite a dismissal, just merely filing for bankruptcy can remain on your credit report and further hurt your credit scores.
After a dismissal, creditors and collection agencies can come after you again with all the power of the law. This could result in lawsuits, foreclosure, and repossession of vehicles, wage garnishment, and nagging collections calls. In addition, depending on the circumstances of your dismissal, you may not be able to file again for half a year, or in the same court.
Types of Bankruptcy Dismissal
There are several types of dismissal, each with different consequences. Among them is dismissal with or without prejudice, voluntary dismissal, and dismissal for abuse. In many cases, as long the details of your petition were made honestly and in good faith, you can either reinstate a dismissed petition or file again right away. Sometimes a voluntary dismissal is sought because one’s circumstances change. Usually, this means you are able to pay back your debts and no longer need bankruptcy relief.
However, a request for voluntary dismissal isn’t always granted. If your bankruptcy case was dismissed and you still wish to file, mistakes are not taken lightly. Anyone wishing to cheat the system could claim it was an accident; therefore, many mistakes will be cause for a dismissal that cannot be reinstated. Dismissals with or without prejudice imply that cases were either dismissed for a good reason, such as fraud or because of unforeseen circumstances or honest mistakes. A dismissal for abuse or with prejudice means the bankruptcy case can never be filed again.
However, after a waiting period, usually half a year, a new bankruptcy case can be filed. Issues related to types of dismissals can be very different, so a great deal depends on your own particular circumstances.
Taking Action after a Dismissal
In cases of involuntarily dismissal or dismissal without prejudice, you can try to get your bankruptcy case reinstated if you move quickly and proactively. You’ll often have a small window to continue pleading your case before it’s thrown out, so you have to pursue the issue immediately. An honest mistake, or administrative dismissal, can sometimes be rectified by a “motion to reconsider” the bankruptcy case. This is your first step, combined with ascertaining and resolving the reason for the dismissal.
A reinstatement is always an option, even if your mistake was an accident. There is also sometimes the option of filing an appeal. If a dismissal is final, sometimes you can immediately file a new one. But any case of dismissal with prejudice, or for abuse, involves a waiting period, usually 180 days. After that time you can file a new case, but your automatic stay might be limited to one month, making it more difficult to get approved.
Worth repeating a final time is the fact that a bankruptcy filing will be recorded on your credit report as soon as you file it, and it could remain on your report even if your case is dismissed. Filing a second time will drop your credit scores further.
What should you do after a dismissal?
There is a chance to get your case reinstated if it was dismissed without prejudice, but you must act quickly. At first, dismissals are rarely final, and courts typically provide a small window of time where you can continue to plead your case or put forward a motion to reconsider. By putting forward this motion, you will also need to rectify the reason for the dismissal. When the motion to dismiss is final, you can either appeal or pay to file a new case immediately as long as your case was dismissed without prejudice. If it was dismissed with prejudice, however, you will need to wait six months before applying again.
How to avoid dismissal
If you are honest, there is no reason, apart from human error, for your case to get dismissed. As such, one of the best things you can do is to invest your remaining money into a successful bankruptcy lawyer. Not only will they file the paperwork on your behalf, but a good lawyer will also make sure that you meet all of the eligibility criteria for bankruptcy before applying and that there are no other factors that could lead your case to be dismissed.
Your case will most likely to be dismissed without prejudice if debtor:
• Failed to file a form with the court
• Failed to pay court fees
• Failed to provide all necessary paperwork
• Failed to attend a hearing
• Failed to follow any of the procedures
Refiling May Limit Your Automatic Stay
When you file for bankruptcy, you will get an automatic stay to prevent your creditors from collecting their loans or garnishing your money. However, when you file for a second bankruptcy within a period of time, then that automatic stay is limited to 30 days. After the 30 days, the creditors may begin to collect again unless you petition to the court to continue the automatic stay. The purpose of this limited automatic stay is to prevent bad faith bankruptcy filings.
You Won’t Have the Same Protection from Creditors If You Refile
When you file for bankruptcy, an automatic stay goes into effect that prohibits most creditors from starting or continuing collection activities. Bankruptcy laws impose certain limits on the automatic stay if you file multiple bankruptcy cases. The rules discourage debtors from filing for bankruptcy simply to delay or hinder their creditors.
Here’s how it works.
If the court dismisses your bankruptcy case and you file another case within one year, the automatic stay in your new bankruptcy will expire 30 days after your filing date. If you had two or more pending bankruptcies that the court dismissed within the past year, you wouldn’t get any automatic stay benefit if you refile. However, it’s possible to get the court to put the stay in place. If you have a good reason for the new filing or why the previous filings occurred then you can file a motion with the court asking for the automatic stay. The court will grant your motion if you prove that you filed the case in good faith.
Why Do Chapter 13 Cases Get Dismissed?
There are several reasons why a Chapter 13 case can be dismissed. Some are the same as for Chapter 7 cases. Things like not paying the court filing fee, not properly preparing for and attending the meeting of creditors, and not filing all required bankruptcy forms. Other reasons why a Chapter 13 bankruptcy case may be dismissed are:
• Failing to pay the Chapter 13 payments.
• Failing to meet certain deadlines.
• Failing to propose a Chapter 13 plan that complies with bankruptcy law.
• Failing to submit the required documentation to the Chapter 13 trustee.
• Failing to file tax returns every year; not submitting a copy to the trustee.
As you can see, the reasons for a dismissed Chapter 13 usually involve the debtor failing to do something the debtor is required to do under the bankruptcy rules. However, sometimes, a dismissed Chapter 13 case is due to something beyond the debtor’s control.
For instance, if a debtor loses his or her job or becomes ill, the debtor may not have enough money to pay the Chapter 13 plan payments. If changing the plan payment or converting the case to a Chapter 7 case is not an option, there may be no choice but to let the Chapter 13 case be dismissed.
Protecting the Petitioner During the Bankruptcy Process
As you move through the bankruptcy process, you are protected from your creditors by an injunction that is referred to as an ‘automatic stay.’ This injunction is used to protect you from nearly all the collection activities that your creditors use. The automatic stay goes into effect the day that you file your case. If your case is successful and you obtain a discharge, you are not required to pay back any of the debts that were discharged in your bankruptcy case.
However, if you are not successful and your case is dismissed, it is deemed void, which means that you are still liable for all your debt. In addition, directly following the dismissal, your creditors are permitted to initiate or continue any litigation to garnish your income or foreclose on your property.
Once you have filed for bankruptcy, you are required to follow certain procedures to obtain a discharge and be relieved of your debts. If these procedures are not followed, your case may be dismissed.
Typically, the majority of Chapter 7 and Chapter 13 bankruptcy cases are dismissed because the debtor fails to:
• file the necessary forms with the court;
• meet the established deadlines for documentation, as set forth by the court;
• provide the bankruptcy trustee with the required supporting documentation for his or her case;
• appear at the meeting of creditors;
• make timely plan payments (in a Chapter 13 bankruptcy case); or
• successfully complete a financial management course (debtor education).
When a Chapter 7 or Chapter 13 bankruptcy case is dismissed without prejudice, the petitioner can immediately refile. Most of the bankruptcy cases that are dismissed without prejudice occur due to issues related to procedure. For example, if the petitioner fails to file the necessary forms with the court. Although the petitioner can refile immediately following this type of dismissal, he or she may need to file a motion to extend or impose the ‘automatic stay’ in the refiled case. Otherwise, collection activities will resume.
Limits on Automatic Stay
Even when a bankruptcy case is dismissed without prejudice and the petitioner refiles right away, there may be limits placed on the automatic stay. For example, if a case is refiled within 12 months of dismissal, the automatic stay is limited to 30 days; however, if the petitioner had two or more bankruptcy cases dismissed within 12 months of the current re-filing, automatic stay will not be granted. Whereas a case dismissed without prejudice can be refiled immediately, the opposite is true when a bankruptcy case is dismissed with prejudice. A petitioner whose case is dismissed in this manner may not re-file for a specific length of time or, in some cases, prohibited from ever filing bankruptcy on the debts that existed at the time of the initial filing.
Possible reasons that lead to a bankruptcy case being dismissed with prejudice include, the debtor:
• filed his or her case in bad faith to delay creditors;
• tried to hide assets;
• willfully disregarded orders from the court; or
• abused the bankruptcy system in some other way.
According to bankruptcy law, a debtor whose case was dismissed with prejudice cannot file another bankruptcy case within 180 days of the prior case if:
• the debtor requested that the case be dismissed after he or she filed a motion for relief from an automatic stay; or
• the debtor willfully failed to follow the court’s orders.
Do I Need a Lawyer?
Correctly filing a bankruptcy case is very important and complex. Hence, it is imperative to use an experienced Ascent law firm lawyers to help you file. Otherwise, your bankruptcy case will be dismissed and/or delayed.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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