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What if I Change My Mind About Filing bankruptcy? Can I Stop the Case?

The decision to file bankruptcy is serious with long-lasting and significant consequences. There are long and short-term implications associated with filing bankruptcy. It should not be entered into lightly, which is why It is prudent to undertake this process with the benefit of consultation with counsel.

What Happens if a Debtor No Longer Wants to Be in Bankruptcy?

Still, there are debtors who change their minds after filing. They will ask counsel if they can cancel or stop their bankruptcy filings. Particularly, after whatever emergency that precipitated the bankruptcy has been averted (such as mortgage foreclosure, vehicle repossession, or wage garnishment).

So, can a debtor back out of a bankruptcy filing? The answer depends on the bankruptcy.

Can a Debtor Cancel a Chapter 13 Bankruptcy Filing?

If a debtor filed a Chapter 13 bankruptcy, only the bankruptcy judge can make the determination of whether the case should be dismissed. The debtor can make a request for a voluntary dismissal of her case to the bankruptcy court. Even if the case is dismissed by the bankruptcy court, however, the fact that the debtor filed bankruptcy will remain on his or her credit report. The bankruptcy case number and record of the bankruptcy filing stay on debtor's credit history file. This happens regardless of whether debtor completes bankruptcy.

A debtor should be extremely cautious in making a request to voluntarily dismiss a Chapter 13 bankruptcy. The financial circumstances that prompted the original filing will likely reemerge. If a debtor wants to file bankruptcy later, it is more challenging, costly, and time-intensive. Section 109 of the Bankruptcy Code mandates debtors who voluntarily dismiss their bankruptcies after a creditor filed a motion for relief from the automatic stay are not able to refile for 180 days. There may be a six-month mandatory waiting period that applies before a debtor can refile a Chapter 13 bankruptcy, in certain circumstances. The bankruptcy trustee and creditors are going to heavily scrutinize any subsequent bankruptcy. A good rule of thumb is to carefully evaluate whether to file bankruptcy in the first instance and then if you want to dismiss the bankruptcy, the decision should be made even more thoughtfully and intentionally.

Can a Debtor Cancel a Chapter 7 Bankruptcy?

If a debtor filed a Chapter 7 petition, he or she does not have the option to voluntarily dismiss the bankruptcy. The only way to dismiss a Chapter 7 bankruptcy is to file a motion to dismiss. That motion is presented to the bankruptcy court. The decision is up to the bankruptcy judge's discretion. The bankruptcy judge and standing trustee will inquire as to why the debtor is requesting a dismissal, voluntarily, of his or her Chapter 7 bankruptcy. For example, if a debtor wants to dismiss his or her case because he or she discovers an asset owned free and clear is at risk for liquidation to repay creditors, the trustee will file opposition to any dismissal request. The trustee's task is to assemble non-exempt property and equity and liquidate same to repay creditors. The trustee will try to keep a debtor in bankruptcy and liquidate his or her property and equity even if the debtor no longer wants to remain in the case.

In many cases, the decision to get out of bankruptcy is more challenging than the initial decision to file. It is prudent to promptly consult with consumer bankruptcy lawyer before making any determination.