What is a Notice of Dismissal of Bankruptcy?

By Cindy Hill

Bankruptcy is a legal process by which debtors may restructure or obtain relief from overwhelming debts and get a fresh start on building a positive economic future. The bankruptcy court process has stringent rules and timelines to insure the debtor and creditors are treated fairly. Failure to abide by these rules may lead to dismissal of the bankruptcy, but in most instances, the debtor will be allowed to refile.

Dismissal vs. Discharge

A discharge is the final court action sought by a debtor in a bankruptcy proceeding, as it signals the bankruptcy is over. The discharge is the court order stating that all repayment obligations have been met, and precludes creditors from continuing to pursue collection. A bankruptcy dismissal, on the other hand, is ordinarily a highly undesirable turn of events for the debtor. When the bankruptcy court dismisses a bankruptcy proceeding, it means that the bankruptcy is void and creditors can immediately return to their collection actions and proceed with attachment of property, wage garnishment and any other lawful means of collection.

Reasons for Dismissal

A notice of dismissal of a bankruptcy case usually arises when the debtor has failed to meet a deadline or fulfill his obligations. Common reasons for dismissal include filing errors or missed filing deadlines, failing to appear at the 314 meeting of creditors, and failure to make monthly payments under a Chapter 13 repayment plan. It is important to swiftly and clearly determine the reason for the dismissal, as some dismissal grounds--such as failure to attend a required credit counseling course--will preclude reinstatement.

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Motion to Reinstate

In some circumstances, the debtor may file a motion to reinstate a bankruptcy case. The reinstatement motion must be filed swiftly, usually within ten business days of the dismissal, although that deadline may vary from jurisdiction to jurisdiction depending on the local bankruptcy court rules. The court may require all circumstances that led to the dismissal be rectified prior to granting reinstatement. For example, if the dismissal was due to missed payments under a Chapter 13 debt restructuring plan, the court may require the missing payments be made up before reinstating the case.

Refiling Chapters 7 and 13

If swift reinstatement of the bankruptcy is not possible, the debtor may be able to re-file and start over at a later date. Dismissal will not prevent debts from being discharged later or prejudice the debtor in a later bankruptcy proceeding. If the bankruptcy was dismissed voluntarily, or dismissed due to the debtor's failure to appear in court or for a 314 meeting, the debtor will have to wait 180 days before refiling. If you are refiling a Chapter 13, you will have to qualify once again for the Chapter 13 process based on your financial circumstances at the time of refiling. If you refile for Chapter 7 after a previous Chapter 13 case was dismissed, you may not be able to keep secured property you were able to hold on to during the Chapter 13 proceedings.

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Chapter 7 Relief of Stay

In a Chapter 7 bankruptcy, a debtor petitions the court for protection from lawsuits and collection efforts. As soon as the petition is filed, the court grants an automatic stay. This is a legal restraining order that goes out to all creditors whom the debtor has listed on the petition. The stay has the effect of immediately suspending collection actions, and preventing any new actions while the bankruptcy is in progress. Creditors may request relief from the stay, which the court will grant if it has grounds to do so.

Objections to Discharge Chapter 7

Most people who file for Chapter 7 bankruptcy are able to discharge the vast majority of their debts almost automatically. To prevent discharges from being granted for debts that are legally not subject to discharge or to debtors who don’t deserve them, creditors and other parties in interest have a period of time to file objections. Once an objection is filed, the matter must go before the bankruptcy court for a final decision before a discharge order will be entered.

What Happens to an Unsecured Loan After Chapter 13 Has Been Dismissed?

When you file for bankruptcy protection under Chapter 13, you are asking a federal court for protection from your creditors. The court issues an automatic stay, meaning your creditors must stop all collection efforts and lawsuits against you. A trustee then draws up a repayment plan, which schedules monthly payments that will repay a portion of your unsecured debts. If you fail to meet the payments, the court may dismiss the case — and there will be important consequences for those unsecured debts.

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