Most people who file a bankruptcy case have one goal in mind, and that is to relieve financial stress by discharging their debts. When your debts are discharged, the filer —debtor in a bankruptcy case—no longer has any personal liability on the debt.
Requirements for Discharge
Each chapter of the bankruptcy code has its own rules for gaining a discharge. For instance, in Chapter 7, the debtor has to file complete and accurate schedules, attend a Section 341 meeting of creditors, attend a financial management course, turnover nonexempt property, and a litany of other items.
In a Chapter 13 repayment plan case, debtors have even more obligations. Generally, they are focused on a repayment plan that will dictate how much you have to pay each month, how many months the plan will last, and what debts must be paid through the program.
Once all those requirements are met, the court will enter an order discharging the debtor’s debts. In contrast, if the debtor fails to meet those requirements, the court will not enter the discharge. Instead, the case is dismissed and closed.
Resuming Collection Activities and Statutes of Limitation
For the most part, once your bankruptcy case has been discharged, all standard debt collection methods may resume for any delinquent debts not included within the bankruptcy. Creditors can resume collection attempts by the full letter of the law, including initiating foreclosure procedures, repossession, and lawsuits.
If the bankruptcy stopped a foreclosure, the mortgage holder doesn’t get to pick up immediately where it left off, which is often auctioning the property on the courthouse steps. It will have to restart the process all over again.
In contrast, other creditors can pick up where they left off. A car creditor can put out a call for repossession. A creditor can continue a lawsuit that was temporarily stopped while the bankruptcy was in progress.
Deadlines and statute of limitations are affected as well. The automatic stay, which goes into effect when the case is filed, prevents creditors from taking action to collect their debts outside of the bankruptcy system.
How to Get Dismissed
Failing to File Paperwork
Failure to file the proper paperwork leads to many early dismissals. There are many pages of schedules and statements that lay out the debtor’s financial picture, including income, expenses, debts, assets, and previous financial transactions.
In addition, the debtor must also have filed tax returns for the last four years and file returns each year they are in a bankruptcy case (for Chapter 13 filers), and provide pay stubs.
Keep in mind that some bankruptcy courts have their paperwork requirements in addition to the ones listed in the bankruptcy code.
Bankruptcy paperwork can be filed at the time the case is filed, or it can be filed within 14 days after the case is filed. In special circumstances, the deadline can be extended beyond those 14 days. With that in mind, there is little excuse for a debtor’s case to be dismissed for paperwork—yet, it happens every day.
Skipping the Section 341 Meeting
Debtors are required to attend a meeting of creditors, which is also called a Section 341 meeting. The name comes from the bankruptcy code that requires you to attend.
Even though it is called a meeting of creditors, in modern bankruptcy practice, creditors rarely attend. It does allow the trustee to clarify anything in the debtor’s paperwork that raises a question.
The meeting is held under oath, and the debtor is required to speak truthfully. The debtor must provide identification, usually a state-issued identification card like a driver’s license and a Social Security card.
The court sets the time and date for the 341 meetings. If the debtor cannot attend for some reason, the session can sometimes be moved to another date. Courts have adapted to these issues by using the telephone or video conferencing when it is not practical for the meeting to be continued until the debtor is available.
Forgetting the Financial Management Course
After the case is filed, each debtor has to complete a financial management course before the case can be discharged. This course is available in person, by phone, or online, and it is offered by several providers.
If the debtor fails to take the financial management course or fails to file a certificate of completion after they complete the course, the case will be dismissed. Hence, it will be necessary for the debtor to file a motion with the court requesting that the case be reopened to file the certificate and the discharge order.
In most cases, the court and the debtor's attorney will charge a new filing fee. But without the financial management course certificate, the case will forever be dismissed without a discharge, and the debtor’s creditors will be allowed to resume actions to collect on their debts.
Losing Assets to a Trustee in a Dismissed Case
A Chapter 7 case consists of two distinct tracks. The first one concerns whether the debtor will get a discharge of debt. On the other track, the trustee administers property that can be sold to satisfy creditors.
Whether there is property that can be sold depends on if the debtor has any non-exempt property. The debtor is allowed to keep a certain amount of property that the trustee and the creditors cannot touch. This is the definition of exempt property.
In contrast, any other property that does not qualify for the exempt status is considered nonexempt property. The trustee can take the nonexempt property, liquidate (sell) it, and distribute the proceeds to creditors who have valid claims.
It is possible that a trustee could take possession of the debtor’s nonexempt property, but the case is dismissed. The debtor would lose the property and still not get the benefits of discharged bankruptcy.
Chapter 13 Dismissal Issues
Payment Plans That Are Not Feasible
Chapter 13 cases are more complicated than Chapter 7 cases. They require that a payment plan be filed and approved by the court. In addition, the debtor has to show that all the debts that are required to be included are provided for and that the plan is feasible—considering the debtor’s income and expenses.
Often, the debtor will file a plan with estimates for the claims of creditors, and the plan will have to be adjusted after the creditors file their claims. It is only after the claims are filed that the debtor will know how much she will be required to pay back with her plan payments.
If the plan is not feasible, approval will be denied. Without a viable plan, the case will be dismissed.
Failure to Make Payments
In a Chapter 13 case, the debtor is required to make payments under the payment plan to a trustee, who will then distribute those payments to creditors holding proper claims.
However, the debtor is also expected to keep current on their house payments, property taxes, income taxes, and domestic support obligations like alimony and child support. If the debtor fails to keep any of those payments current, the court will dismiss the case.
When a Chapter 13 case is dismissed, it is not unusual for the debtor to start the process again by filing a new Chapter 13 case. This often happens when the debtor has an interruption in income and cannot get caught up on the required payments.
When the debtor files a second case within a year of the dismissal of the first case, the automatic stay is only valid for the first 30 days.
If the debtor wants an automatic stay to continue, they must file a motion to extend the stay with the court. This usually requires that the debtor gives a testimony at a hearing to explain why the first case was dismissed and why the second case will succeed.
If the debtor has had two cases pending during the prior year, the automatic stay never goes into effect. The debtor who wants the effect of the stay will have to ask the court to impose the stay. Again, the debtor will have to give testimony and explain to the court why two cases were dismissed within the year and why the new case will succeed.