Rare Chapter 7 Bankruptcy Dismissals – When it comes to dismissals and bankruptcy, the general rule is that Chapter 7 cases are rarely dismissed but Chapter 13’s are very commonly dismissed. Bankruptcies can be dismissed for various reasons -some good and some bad. Let’s discuss the dismissal of Chapter 7 bankruptcies and what types of dismissals are encountered.
Chapter 7 cases are rarely dismissed in the bankruptcy system. The usual outcome of a Chapter 7 is the discharge order and closing of the bankruptcy case. This is the normal desirable outcome in which all of your debts are eliminated.
However, on rare occasions the dismissal of a Chapter 7 bankruptcy can be necessary. First, a case can be dismissed by the Chapter 7 Trustee or United States Trustee due to an ineligibility for Chapter 7 or some other bad faith circumstance. The Trustee and United States Trustee are responsible for maintaining the proper application of the bankruptcy code. In rare cases when the eligibility for Chapter 7 is questionable, a motion to dismiss can be filed.
The most common motion to dismiss in a Chapter 7 is due to an interpretation by the United States Trustees Office that the debtor is not eligible for Chapter 7 according to their means testing. To put it simply, the United States Trustee believes that the debtor is making too much money to be in Chapter 7. The debtor may have sufficient income to pay back some of their creditors in a Chapter 13 case. In such a situation, the debtor will be given the choice to either dismiss their Chapter 7 case or convert their current Chapter 7 case to Chapter 13.
Sometimes there are good, acceptable reasons for a Chapter 7 debtor to dismiss their case. For instance, a Chapter 7 case can be voluntarily dismissed by the debtor in order to address new large unexpected debts such as medical bills from a heart attack or stroke. In such a situation, the new medical bill would have to have occurred almost immediately after the bankruptcy case was filed. The Bankruptcy Trustee would likely not have an objection to such a motion to dismiss as long as the debtor still turns over any non-exempt assets into the bankruptcy estate.
Keep in mind, however, that not all voluntary motions to dismiss in Chapter 7 will be granted. The Trustee has a duty to administer an estate with assets in order to protect the creditors. If a Chapter 7 debtor plans to file bankruptcy, he cannot rely 100% upon any ability to get out of the Chapter 7 process after it has started. The attitude of “let’s do this and see what happens” is not the proper attitude to have when you file for Chapter 7 Bankruptcy. Chapter 7 should be thought of more like a potentially irreversible process that can have consequence that include losing certain types of assets.
Chapter 7’s are rarely denied and are very infrequently dismissed. If you need to get relief from your debts, Chapter 7 is a relatively simple process that can eliminate your debts in a short time. Although dismissals do occur in Chapter 7 bankruptcy, they are very rare and do not affect most cases.
– Indianapolis Chapter 7 Bankruptcy Attorney John Bymaster