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Reasons a Trustee Might Dismiss a Bankruptcy Case



The opportunity to obtain a fresh start and discharge of debts in bankruptcy is not a legal right, but instead, a privilege. This privilege is reserved for only those debtors who abide by applicable bankruptcy laws and rules. For those who do not abide by guidelines, valuable bankruptcy protections are not available and their cases may be dismissed.

Dismissal

A debtor may face dismissal of her case under both Chapters 7 and 13. A Chapter 7 bankruptcy is known as a liquidation and involves the sale of a debtor's non-exempt property, and sale proceeds are used to pay creditors' claims. A Chapter 13 bankruptcy, on the other hand, is a reorganization case in which a debtor repays a set portion of debts over a period of time (maximum of five years) in exchange for the right to retain key property, such as a car and home.

The major reasons a debtor's case may be dismissed by the bankruptcy court usually fall into one of several scenarios:

  • Debtor fails to obtain mandatory pre-filing credit counseling.
  • Debtor fails to file correct and official bankruptcy forms with the court.
  • Debtor fails to pay requisite filing fees to the bankruptcy court and does not qualify for and obtain an allowable fee waiver.
  • Debtor lies on statements, schedules, disclosures, or other forms filed with the bankruptcy court (this constitutes bankruptcy fraud, which is a federal crime).
  • Debtor hides real or personal property so that it cannot be sold or otherwise liquidated for estate's benefit to repay creditors (this constitutes bankruptcy fraud, which is a federal crime).
  • Debtor fails to attend mandatory initial meeting of creditors.
  • Debtor fails to make plan payments to standing Chapter 13 Trustee in his bankruptcy case.

Reinstatement

If a case dismissal is based on a small and honest error, it is usually possible to petition the court to reinstate the case and vacate the dismissal. Then, a debtor's credit report will only reflect one bankruptcy filing. However, if the case dismissal was premised on a serious and egregious mistake (such as bankruptcy fraud), a debtor will likely be barred from filing bankruptcy for a given period as a sanction or penalty.