My bankruptcy case was dismissed

When a Bankruptcy Case is Dismissed…

Dismissal of a bankruptcy case is unfortunate and can happen for a number of reasons. The Bankruptcy Code places numerous responsibilities on debtors and failure to comply can jeopardize your case; making it important to consult with a knowledgeable bankruptcy attorney before filing. When a bankruptcy case is dismissed without issuance of a discharge, you are once again at the mercy of your creditors, meaning collection efforts can resume.

Common Reasons for Dismissal

2005 changes to the Bankruptcy Code now require all debtors to complete a credit counseling course from an “approved credit counseling agency” within 180 days before filing their petition. Failure to comply with this requirement will result in an automatic dismissal of the case. Similarly, a bankruptcy case will be dismissed if the debtor fails to appear at the meeting of creditors or does not file a financial management certificate with the court soon thereafter.

My Bankruptcy Was Dismissed, What Should I Do?

What to do in the event of a dismissal? The answer will turn on exactly why your case was dismissed. If you’ve dismissed your case in bad faith or it appears you’re trying to game the system, you might have to wait 180 days before refiling. Section 109(g) of the Bankruptcy Code prevents a debtor whose case was dismissed from filing another bankruptcy for 180 days if:

(1) the case was dismissed by the court for “willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case” or (2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the Automatic Stay.

While exactly what constitutes a “willful failure” to abide by the orders of the court is a fact specific inquiry that must be decided on a case-by-case basis, it is unlikely that a creditor or U.S. trustee would object to a case being refiled that has been dismissed for failure to take the credit counseling or financial managements courses. In these cases, the debtor will almost always be permitted to refile right away without any hassle.

Must You Wait 180 Days to Refile?

The 180 day wait period to refile a dismissed bankruptcy case was put in place because of the power of the automatic stay and it’s ability to stop creditors in their tracks. Readers of this blog will recall that the automatic stay is an injunction issued by the bankruptcy court which prevents collection activity of any kind after a case has been filed. Especially in the real estate context, repeatedly filing bankruptcy and then voluntarily dismissing the case can indefinitely frustrate lender foreclosure efforts. The bankruptcy code addresses this loophole by preventing a case from being refiled that has been dismissed after a creditor has moved to lift the automatic stay.

Similarly, the automatic stay is limited to 30 days if a debtor files for Chapter 7 bankruptcy within one year of a previous case being dismissed.