Bankruptcy Dismissal vs Discharge

Bankruptcy cases in Arizona generally end in one of two ways: dismissal or discharge.

• A dismissal happens when your bankruptcy case does not reach its conclusion in a discharge of your eligible debts.
  
• Discharge is the objective of a bankruptcy filing, which eliminates debts that are subject to the authority of a bankruptcy court under the United States Bankruptcy Code.

Stone Rose Law represents Arizona residents in bankruptcy. In this blog post, we cover what happens when your bankruptcy case is discharged, and what you can do if your case is dismissed.

If you are considering bankruptcy, please schedule a free consultation with one of our Arizona bankruptcy law specialists by calling us at (480) 739-2448.

What Are the Features of a Bankruptcy Discharge?

The point of choosing bankruptcy, regardless of whether it is in Chapter 7 or Chapter 13, is to legally eliminate or reduce debts. This is the definition of a bankruptcy discharge.

Characteristics of a bankruptcy discharge include:

• Permanence (with exceptions). Once debts are discharged, you are no longer legally obligated to pay them. However, discharges can sometimes be revoked (for example, if fraud is later discovered), and certain debts can be voluntarily reaffirmed.
  
• Freedom from collection. Creditors cannot continue to demand payment or pursue lawsuits on discharged debts.

In a Chapter 7 bankruptcy, discharge usually happens from four to six months after you file your petition. A Chapter 13 bankruptcy discharge is obtained after completing a debt repayment plan, which lasts from three to five years.

What Debts Can a Discharge Eliminate?

Bankruptcy can discharge many kinds of debts. These include:

• Credit card debt balances
  
• Personal loans like payday loans
  
• Medical bills
  
• Unpaid utility bills
  
• Certain income taxes that meet timing rules
  
• Foreclosure or repossession deficiency balances
  
• Civil liability from accidents not involving driving under the influence of alcohol or drugs
  
• Past-due rent

What About Secured Debts?

Although a bankruptcy discharge will not eliminate liens that secure discharged debts, it does mean that creditors can only enforce these liens by levying against or foreclosing on the underlying secured asset.

What Debts Cannot be Discharged?

Not all debts are subject to discharge. Common examples of non-dischargeable debts include:

• Child support and spousal support
  
• Most student loans, unless you prove undue hardship through an adversary proceeding
  
• Recent income taxes and payroll taxes
  
• Court restitution and criminal fines
  
• Judgments related to drunk-driving injuries
  
• Debts you did not include in your bankruptcy petition
  
• Fraud-related debts

How to Obtain a Discharge Order in Bankruptcy

Although obtaining a discharge in bankruptcy is never guaranteed, there are things you can do while working with your Arizona bankruptcy lawyer to improve your chances.

Work With an Experienced Bankruptcy Law Firm

The first step is to hire an experienced bankruptcy attorney. 

You can represent yourself in bankruptcy. However, when you have a knowledgeable bankruptcy lawyer on your side, you can be sure that you will not make an error in your bankruptcy documentation, miss an important deadline, or leave out a debt that you can have discharged.

Make Sure You Comply With Bankruptcy Requirements

Bankruptcy proceedings are fairly straightforward. The more you meet the requirements of complying with federal bankruptcy laws and local rules of the Arizona Bankruptcy Court, the more likely it becomes that the court will close your case with a discharge instead of a dismissal.

Here are some specific things you can do:

• Complete your initial Credit Counseling Course and file the certificate of completion with your Voluntary Petition.
  
• Timely Submit all schedules A through J of your petition. This is your disclosure of assets, exemptions, debts, contracts, co-debtors, income, and expenses. You generally have 14-days from filing to correctly submit all these forms with complete figures and information.
  
• Timely submit all statements-specifically the history of your financial affairs, intentions regarding secured debts, and your current monthly income.
  
• File required supporting documents to your petition (depending on your jurisdiction and local rules).
  
• Finish both of your required financial counseling and education courses and file the completion certificates promptly.
  
• Pay the bankruptcy filing fee, or gain approval for a waiver or installment plan before the payment deadline expires.
  
• Provide requested documents to your assigned Trustee.
  
• Attend the 341 meeting of creditors, along with any other required hearings.
  
• Follow all court orders and local rules.
  
• If you are in Chapter 13, keep current with your repayment plan payments.

What Is a Bankruptcy Dismissal?

A bankruptcy dismissal means the court closes your case during the bankruptcy process without granting you a discharge from your debts. A dismissal can happen for any of several reasons:

• Voluntary dismissal: Usually possible in Chapter 13 (less so in Chapter 7, unless the court agrees it is in the creditors’ best interest).
  
• Involuntary dismissal: Happens if something goes wrong in your case.

Generally, you cannot voluntarily dismiss a Chapter 7 case, although you may be able to convert a Chapter 7 to another kind of bankruptcy. You will usually have the right to voluntarily dismiss a Chapter 13 case.  

Reasons for Bankruptcy Dismissal

Some common reasons why the bankruptcy court may dismiss your case include:

• Your bankruptcy paperwork is incomplete, or you missed a filing deadline.
  
• You missed your 341 creditors meeting.
  
• You did not complete one of your required credit counseling courses.
  
• You failed to follow a court order.
  
• You did not pay your required court filing fee.
  
• You did not stay current on a Chapter 13 debt payment plan.
  
• You chose the wrong kind of bankruptcy.

Effects of a Bankruptcy Dismissal

A dismissal has the effect of putting you back to “square one” with your creditors.

• Your bankruptcy automatic stay protection from your creditors will end, so they can resume collection efforts and pursue wage garnishments.
  
• Interest and late fees that were paused during the stay will often resume.
  
• If the dismissal is without prejudice, you may be able to re-file for bankruptcy protection, but you may need to satisfy a waiting period of 180 days or more and meet other legal requirements before doing so.
  
• If you re-file within 12 months, the automatic stay usually lasts only 30 days unless you successfully ask the judge to extend it.
  
• If you had two or more dismissals in the past 12 months, no automatic stay goes into effect unless you file a motion and the court grants it.

How Does a Dismissal Affect Your Credit Report?

Both dismissed and discharged bankruptcies typically appear on your credit report — usually for 7 years (Chapter 13) or 10 years (Chapter 7). However, with a dismissal, you remain responsible for all debts, and they will continue to show as delinquent if unpaid.

Conclusions About Bankruptcy Discharge and Dismissal

The table below summarizes some of the important differences between bankruptcy discharge and dismissal.

Consideration	Effect of Discharge	Effect of Dismissal
Debt collection efforts	No further creditor contact or collection allowed on discharged debts	The automatic stay expires and creditors can resume collection efforts
Automatic stay	Replaced by a permanent ban on collections	Ends immediately
Credit score trend	Often rises within a year	Usually keeps falling
Refiling for bankruptcy protection	No need	Possible if debt relief is still needed, and if refiling is allowed
Long-term debt load	Reduced or eliminated	Same or larger than before

Do You Have Questions About Bankruptcy Dismissal vs Discharge?

The federal bankruptcy system can be complex and difficult to understand, including its terminology. Our purpose here has been to help you distinguish between a bankruptcy discharge and a dismissal. If you still have questions or want to know how filing bankruptcy compares to other kinds of debt relief in Arizona, call us at the Stone Rose Law Firm, (480) 739-2448 to speak with an experienced Arizona bankruptcy attorney.

You can also use our bankruptcy calculator to estimate and visualize your expected debt repayment timeline, including an alternative timeline if you consider bankruptcy.Our legal experience with Chapter 7 and Chapter 13 bankruptcy is extensive. If you prefer, you can use our online contact form to ask a question or schedule a free initial consultation and case evaluation.