Dismissal vs Discharge in Bankruptcy: What You Need to Know
Facing crushing debt is tough and you might be considering bankruptcy. The terms “dismissal vs discharge in bankruptcy” can be confusing, but the differences are significant. Understanding this distinction is crucial as it directly impacts your financial future.
Many people feel overwhelmed by legal terminology. This guide simplifies these concepts, providing clear explanations of what each term entails. Around a million Americans file bankruptcy each year; you’re not alone in seeking debt relief, a discharge, or having a dismissed bankruptcy case.
What is a Bankruptcy Discharge?
A bankruptcy discharge is like reaching the finish line in a race. It signifies that you’ve successfully completed all required steps in your bankruptcy journey. The bankruptcy court issues a discharge order stating that your eligible debts are forgiven.
This discharge order means those creditors are legally barred from attempting to collect those debts from you. This gives you that fresh start many seek when filing bankruptcy.
What Debts Get Discharged?
Bankruptcy can eliminate many types of debt, offering much-needed debt relief. Here are some common examples of debts discharged:
- Credit card debt
- Medical bills
- Personal loans
- Past due utility bills.
A bankruptcy attorney can review your specific financial situation. They can advise on all potential options, including letters of explanation that can be drafted. They will also tell you what debts are and are not dischargeable debts.
Debts That Often Survive Bankruptcy
Some obligations usually aren’t erased in bankruptcy cases. Here are a few key examples:
- Student loans
- Child support and alimony
- Certain taxes
- Government fines
Discharging these types of debts often requires special circumstances. The rules can vary depending on your location, as well as based on interpretations of the bankruptcy code.
How The Discharge Timing Varies by Bankruptcy Type
The timing of your bankruptcy discharge depends on whether you file bankruptcy under Chapter 7 or Chapter 13.
With Chapter 7 bankruptcy, the bankruptcy process is generally faster. You could receive a bankruptcy discharge a few months after filing.
Chapter 13 bankruptcies involve repayment plans. You make payments over three to five years, addressing past-due amounts. After completing this payment plan, any remaining eligible debts are discharged.
What Happens When a Bankruptcy Case is Dismissed?
A bankruptcy dismissal is a different scenario. This usually means the bankruptcy case ended *without* your debts discharged. A bankruptcy dismissal essentially halts the bankruptcy process.
This leaves you still owing the money. Unsecured creditors can then resume efforts to pursue legal action to collect.
Voluntary Dismissal: Your Choice
Sometimes, you might decide bankruptcy isn’t the right path and request a voluntary dismissal. This is more common in Chapter 13 cases than in Chapter 7.
In a Chapter 7 bankruptcy case, a voluntary dismissal request might be denied if it harms creditors. Sometimes, a judge won’t allow a Chapter 7 voluntary dismissal. A bankruptcy dismissal, especially an involuntary dismissal, cancels the automatic stay.
Involuntary Dismissal: When Things Go Wrong
An involuntary dismissal occurs when the court terminates your bankruptcy case. Common reasons include:
- Not adhering to bankruptcy law and the rules of bankruptcy.
- Failing to provide complete information to your bankruptcy attorney.
- Missing a court appearance, failing the means test, or skipping a mandatory class.
Under Section 1307 of the Bankruptcy Code, a Chapter 13 case might face involuntary dismissal for incorrect paperwork. Other reasons could be failing to propose a viable repayment plan or not filing tax returns.
An involuntary dismissal has potential for legal action and it can carry a negative outcome to your situation. All the circumstances change once that happens, with dismissals occurring more frequently than you might imagine.
Dismissal “With Prejudice” vs. “Without Prejudice”
If your case is dismissed “without prejudice,” you can often file again quickly. Simply correct the errors that led to the bankruptcy dismissal.
A dismissal “with prejudice” is more serious. This indicates a problem that needs resolving before your debt can be forgiven. For example, perhaps you submitted incorrect paperwork, discovered during the 341 meeting of creditors.
In some courts, if a voluntary dismissal followed a request for relief from the automatic stay, refiling won’t protect the debtor. Consult with an experienced attorney if you were denied refiling.
The Credit Report Impact
Both a completed bankruptcy and a dismissed bankruptcy can remain on your credit report. The impact will vary depending on several circumstances in your specific case, and the effect on your credit score can last from 7 to 10 years.
After a dismissed bankruptcy case, your credit card debt, medical bills, and other debt still are in play for the original creditors. They still have full legal right to collect the debt and even pursue legal remedies if needed.
Bankruptcy Requirements
You might be unaware of key details needed to achieve a bankruptcy discharge. It’s normal to feel nervous or even embarrassed to ask about these things.
To qualify for debt relief and a subsequent discharge, you should be aware of certain requirements. Understanding the differences between a potential discharge and a dismissal of your bankruptcy case is part of those requirements.
Meeting all the Requirements
When filing bankruptcy, you’re legally required to complete several steps.
One requirement is completing a credit counseling course from an approved agency. This is mandatory, usually within 180 days before filing. The government provides official downloadable bankruptcy forms, so use these to your advantage as well.
Discharge Differences in the Bankruptcy Chapters
Chapter 7 may involve surrendering assets to repay creditors. According to the United States Courts, your goal in bankruptcy should be a discharge, thus forgiving your debts.
To improve your chances of a discharge, there are numerous other steps. The discharge is then automatically granted a certain number of days later, so long as there are no objections.
Dismissal vs Discharge In Bankruptcy
Here is a breakdown of those details:
| Factor | Bankruptcy Dismissal | Bankruptcy Discharge |
|---|---|---|
| Outcome | Case closed, debts *not* forgiven. | Case closed, applicable debts forgiven. |
| Creditor Action | Creditors can resume collections, and pursue legal action. | Creditors barred from collecting discharged debt. |
| Future Filing | May be restricted, especially if “with prejudice”. | A successful bankruptcy may limit future filings for a time. |
Continue working to improve your financial situation and to comply with bankruptcy law. Your goal is to improve your finances.
Frequently Asked Questions (FAQs) about Dismissal vs. Discharge in Bankruptcy
What is the main difference between a bankruptcy dismissal and a discharge?
The key difference is the outcome. A discharge means your eligible debts are forgiven, while a dismissal means your case is closed without debt forgiveness. This also leaves open claims, credit card debt, and medical bills still in collections, in addition to the potential for further legal action on your accounts. You may also be dealing with situations involving taxes and government fines, and potentially other situations like having student loans and child support balances.
Can I refile for bankruptcy after a dismissal?
It depends. If dismissed “without prejudice,” you can usually refile quickly. If dismissed “with prejudice,” there may be restrictions. Dismissals occur under various conditions.
Will a dismissal or discharge affect my credit score?
Yes, both will negatively impact your credit score. However, a discharge eventually allows you to start rebuilding credit. Both situations stay on your record anywhere from 7 to 10 years.
What are some common reasons for involuntary dismissal?
Common reasons include failing to follow bankruptcy rules, not providing complete information, and missing court appearances. Other actions that can cause issues involve not handling paperwork or filings involving things like personal loans, child support, taxes, and government fines. This is why we want you to fully comprehend things as they specifically relate to your financial situation.
What types of debts are typically *not* discharged in bankruptcy?
Some debts, like student loans, child support, certain taxes, government debts, and government fines are usually not discharged. If there were any criminal acts or fraud fines leading up to the bankruptcy, those also are things to consider. A qualified attorney will explain what debts are discharged.
What happens to credit card debt medical accounts and balances after a dismissal?
After a dismissal, they go back to the status they were in. You’re back on the hook to deal with things as they previously existed before any actions for bankruptcy ever happened.
Conclusion
Understanding “dismissal vs discharge in bankruptcy” is crucial if you’re facing financial hardship. Grasping the legal implications of filing bankruptcy is essential.
If things don’t go as planned, don’t lose hope. Be aware of the implications for your situation. Be certain to speak with a qualified attorney in New York to work within the court system that applies to your proceedings and filings.