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Bankruptcy Discharged vs. Dismissed

For those who are contemplating filing bankruptcy, some of the terms can be confusing. The following information may help clarify some of the terms.

What Does a Discharged Bankruptcy Mean?

An order of discharge in bankruptcy means that the debtor is free of liability for a debt that was incurred. The legal obligation for repayment has been nullified by a permanent court order, and the creditor can no longer pursue the debtor for satisfaction of the debt. This also means that the debt cannot be sold to a collection agency since, in essence, the obligation no longer exists.

Which Debts May Be Discharged?

Not all types of debts are dischargeable in all types of bankruptcies. Chapter 7 and Chapter 13 bankruptcy filings are generally used for personal or sole proprietor debts. Although secured debts may be discharged in a bankruptcy filing, the creditor may have the option of reclaiming the security. Unsecured debts that can be discharged in both Chapter 7 and Chapter 13 include:
  • Credit card debts
  • Debts from a vehicular accident
  • Judgments from lawsuits
  • Leases and contractual obligations
  • Medical bills
  • Personal loans and promissory notes
  • Some types of miscellaneous debt
  • Some types of tax debt
Debts that aren't dischargeable in Chapter 7 but can be discharged in Chapter 13 only include:
  • HOA fees, condo and co-op fees
  • Court fees
  • Debts that weren't discharged in a prior bankruptcy
  • Loan debt that was used to pay a tax debt
  • Loans from a retirement plan
  • Marital debt from a divorce or property settlement agreement

What Types Of Debts Can Be Discharged?

Not all types of debt can be discharged in a bankruptcy filing, whether it's Chapter 7 or Chapter 13. Types of non-dischargeable debt include:
  • Alimony
  • Child support
  • Debts incurred as a result of driving under the influence
  • Debts for luxury items purchased within specific time frames prior to filing for bankruptcy
  • Debts from fraudulent activities
  • Monetary penalties and fines incurred as a result of breaking the law
  • Some types of tax debt

What Does a Bankruptcy Dismissal Mean?

If a bankruptcy case is dismissed, it has the same result as if the case were never filed. There is no discharge of indebtedness and the debtor remains responsible for the debt. Dismissal can occur due to filing errors or other types of errors. When a bankruptcy case is dismissed, the automatic stay is terminated and creditors can resume their efforts to collect their debt up to and including foreclosures, placing liens on real and personal property, and seizure of tangible assets.

What's The Difference Between A Voluntary And An Involuntary Dismissal?

Voluntary Bankruptcy Dismissal

When an individual files for Chapter 13, they can request a voluntary dismissal if they decide that filing bankruptcy was an error in judgment. This could be due to finding successful employment or learning that a particular debt isn't dischargeable or for another reason. The court can then order a dismissal of the case. Under Chapter 7, however, once the case is filed, only the judge can order a voluntary dismissal.

Involuntary Bankruptcy Dismissal

If an individual doesn't make the required payments on a bankruptcy or otherwise fails to meet the requirements of the court, then the court may file an involuntary dismissal. Although the decision to no longer make payments or otherwise meet the court-mandated requirements is voluntary, the dismissal is not considered voluntary. Sometimes, an involuntary dismissal can be reversed and the bankruptcy reinstated, but this must be done in an expedient manner, and reinstatement is ultimately up to the court's discretion.

Filing for Bankruptcy Again After a Dismissal

When re-filing to have a bankruptcy case reinstated, the individual must meet specific time limitations. It's imperative to learn the reason for the dismissal before proceeding with the request for reinstatement. Involuntary dismissals can occur due to simple clerical errors or missed deadlines or other issues. If the dismissal occurred due to information supplied by creditors, then it may be more challenging to have the case reinstated. Whether the case is voluntarily or involuntarily dismissed, the protection and automatic stays cease at the time of dismissal, and the creditors will be notified of the dismissal so that they can resume their collection efforts. If the dismissal was involuntary, then it may be possible to file another bankruptcy case, but there are time constraints and federal restrictions that must be met. As long as the requirements are met, it doesn't matter whether the original case was a Chapter 7 or a Chapter 11 bankruptcy. However, the second filing may appear on the credit report as a separate bankruptcy filing, which may result in a significant reduction of an individual's credit score.

Can Your Bankruptcy Discharge Be Denied?

Although bankruptcy cases can be denied, it seldom occurs. When it does, it's usually due to fraud on behalf of the debtor, and it's usually committed against one or more creditors. The most common reasons for having a bankruptcy denied include:
  • Defrauding a creditor: When personal property is transferred, sold, destroyed, or concealed within the year immediately preceding the bankruptcy filing, it may be evidence of an attempt to defraud. The decision to assign fraudulent intent is at the discretion of the judge.
  • Deficiency in assets: When there's no satisfactory explanation for a deficiency in assets, then a judge may decide that there's an intent to defraud.
  • Misrepresentation of facts: Also called lying, bankruptcy forms require the filer to state under penalty of perjury that the information is true and accurate to the best of their knowledge. If this is subsequently proven to be false, then the petitioner can be deemed to be attempting to perpetrate a fraud, and their bankruptcy case can be denied.
  • Misrepresenting or hiding financial information: Failure to disclose financial information or assets can be considered an attempt to defraud and result in the denial of the bankruptcy case.
  • Non-compliance with court orders: If a debtor doesn't complete the courses required by the court or doesn't obey other lawful court orders, they can be considered fraudulent debtors and their bankruptcy case denied.

Can Creditors Still Call After A Bankruptcy Has Been Discharged?

When a debtor files for bankruptcy, whether it's Chapter 7 or Chapter 11, an automatic stay of collection is put into place. When the case is discharged, then creditors have no legal right to continue their collection efforts. Those creditors who continue to call after the debtor has filed Chapter 7 or Chapter 11 bankruptcy or after the debt has been discharged are in violation of the law. The debtor may have legal recourse against them unless the court has granted the creditor the right to continue their collection activities. If a creditor continues to attempt collection efforts despite being informed of the bankruptcy, then they may be liable for legal action, especially if they threaten to place a lien or garnish wages. It's essential to keep detailed records of their activities, including names, dates, times, and types of contact, whether it's email, phone, text, or U.S. mail.
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