A few months ago, I wrote about when a chapter 7 bankruptcy case can be dismissed, and I touched on dismissals that are with or without “prejudice.” Today I’ll clarify what this means for New York bankruptcy debtors.
Section 349(a) of the Bankruptcy Code prevents a dismissal from interfering with a debtor’s future rights to discharge debts or refile bankruptcy in the future. This limitation is what New York bankruptcy lawyers refer to when they characterize dismissals as “without prejudice.” That is, a debtor can refile the case without any penalty.
Now, there is an exception to this limitation spelled out in section 109(g) of the Bankruptcy Code. It sets a time bar, 180 days, on debtors whose cases have been dismissed without prejudice for one of two reasons. Reason number one is if the debtor “willfully failed to abide by court orders or failed to appear before the court to properly prosecute the case,” and the court dismissed the case. Here, the Bankruptcy Code appears to be giving bankruptcy judges a way to avoid dismissing these kinds of cases with prejudice, or it’s trying to standardize the punishment for some forms of debtor misconduct.
Reason number two is circumstances in which the debtor voluntarily dismissed the case after a creditor filed a motion to lift the automatic stay. The idea here is to prevent a form of serial bankruptcy in which debtors file and dismiss their cases to ensure a foreclosure on their properties is never executed.
So, to recap, if a bankruptcy court dismisses a case without prejudice, then there are no penalties, unless the debtor is a nuisance to the court or engaging in serial bankruptcy. When, then, is a dismissal “with prejudice” allowed?
Back in section 349(a), the Bankruptcy Code can grants bankruptcy courts broad powers to punish debtors “for cause.” In these situations, which contrast with dismissals without prejudice, the bankruptcy court may limit a debtor’s right to file bankruptcy until a later date, or it can bar the discharge of debts in later bankruptcies. The Bankruptcy Code does not specify what “for cause” means, but it’s generally interpreted as any behavior by the debtor that abuses the bankruptcy system. Examples include defrauding the court, filing multiple concurrent cases, hiding assets, or hindering creditors.
If a bankruptcy court dismisses a debtor’s case with prejudice and sets a time bar for refiling, then the honest debtor’s best option is to tough it out and refile after the time period has elapsed. If the debtor wishes to challenge the court’s determination that some debts should forever be nondischargeable, then the debtor’s best hope is to appeal the decision to a federal district court. This process is expensive and the burden on the debtor is very high.
If you are considering filing bankruptcy, it’s unlikely you’ve done anything that will motivate a court to dismiss your case with prejudice, but if you file without a lawyer, there’s a chance that your case will be dismissed for technical mistakes that aren’t worth making. Consulting with an experienced New York bankruptcy lawyer will help you avoid those mistakes.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.