Dismissal of a New York bankruptcy case can be hazardous for debtors, so it’s certainly something to avoid. Note that having a case dismissed is not the same as having a case closed. Closed bankruptcy cases can be reopened, but dismissed cases can only be refiled, if allowed. Thus, the questions are: When can a chapter 7 case be dismissed, and what are the consequences to debtors?
Although chapter 7 of the Bankruptcy Code contains a section that describes the reasons a case can be dismissed (section 707), it’s not the only one, but it is one of the most commonly used sections. For one, it gives bankruptcy courts the power to dismiss cases for cause and only after notice and a hearing for bad faith acts of the debtor, and it offers a few examples: unreasonable delay by the debtor, nonpayment of fees, and failure to file paperwork that should be included in the debtors’ petition. It’s unclear if potential prepetition bad faith counts, like increasing retirement contributions before filing. Most of the rest of section 707 describes the means test, failure of which does not automatically result in dismissal: It gives debtors the option to convert their cases to chapter 13 or chapter 11.
Other sections of the Bankruptcy Code directly or indirectly give bankruptcy courts the power to dismiss debtors’ cases. Section 109(g) dismisses individual debtors’ cases if they had filed bankruptcy cases in the previous 180 days and they were dismissed either because of debtor misconduct, or they voluntarily dismissed their cases after a party filed a motion to be relieved from the automatic stay. Section 521, which lists debtors’ duties, also provides situations in which a case can be dismissed, mostly concerning failure to file income-tax returns.
Bankruptcy courts also use dismissal indirectly as a mechanism for handling cases in which the debtor is disqualified from a discharge while seeking one, notably in section 727 when the debtor has already received a discharge in a prior, recent bankruptcy case.
Other specific reasons for dismissal debtors should be aware of are: supplying false information to the court, not paying filing fees, failing to complete the debtor financial education courses, refusing to deliver non-exempt property to the trustee, and failing to attend the meeting of the creditors.
The consequences of a dismissal to debtors depends on whether the dismissal was with or without prejudice. If the dismissal was with prejudice, which means the debtor engaged in some kind of conduct that angered the bankruptcy court, then the debtor may refile the case after 180 days as discussed above. However, some of the debtor’s debts may not be eligible for discharge as a result of the conduct. If the conduct was egregious, then debtors might face investigation by the U.S. Trustee’s Office.
By contrast, a dismissal without prejudice does not penalize debtors, but they will need to refile their cases if they wish to continue their bankruptcies. Thanks to section 349 of the Bankruptcy Code, most dismissals will not affect debtors’ subsequent bankruptcy rights unless the court has decided for cause.
Bankruptcy dismissals usually result from mistakes by debtors and inexperienced counsel. If you want to avoid a case dismissal, then consulting with an experienced New York bankruptcy lawyer will minimize the likelihood of a mishap.
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.