What is the Difference Between a Bankruptcy Discharge and Dismissal?

Mar 14, 2011 6 Comments by

 

Debtors sometimes confuse the difference between a discharge and dismissal but they are two very different and distinct outcomes of bankruptcy.

Discharge Defined

A discharge means that all the requirements set by the court have been met by the debtor. In a Chapter 13 bankruptcy this means that all the debtor’s payments have been made in full and on time. For a Chapter 7 bankruptcy it means that all the creditors and unsecured debts listed in the bankruptcy petition (filed with the Court) have been wiped out. Once the case has been discharged creditors can no longer attempt to collect the debts owed to them. This allows the debtor a fresh start and he/she can move on without the burden of insurmountable debt.

Discharge Time Frame

A discharge usually happens more quickly in a Chapter 7 because assets are liquidated to pay creditors. A Chapter 13 discharge can take as long as three to five years because debts are partially repaid over that time according to the Court approved bankruptcy plan. A discharge is a favorable outcome for the debtor and is his/her goal for filing bankruptcy in the first place.

Dismissal Causes

On the other hand, a dismissal is not the desirable outcome for a debtor. A dismissal happens more frequently in a Chapter 13 than a Chapter 7. A case can be dismissed for many reasons like not being able to afford the Chapter 13 payments because life circumstances have changed (i.e. job loss, etc.). In either type of bankruptcy, not completing required credit counseling and financial management courses could cause a dismissal as well as if the case was improperly filed. A case can also be dismissed for fraudulent reasons, i.e. excessive credit card abuse indicating that the debtor was trying to accumulate massive debt that he never intended to repay or property transfer to a relative just prior to filing.

Dismissal, Creditors and Credit Report

Once a case is dismissed, the automatic stay placed on the creditors that prevented them from being able to collect a debt is lifted, and the creditor may resume attempts to collect a debt. After a Chapter 13 dismissal the debtor cannot file another bankruptcy for 180 days. Whether your case is dismissed, discharged, or active all three statuses will show on your credit report.

One way to ensure a favorable discharge and not a dismissal is to convert a Chapter 13 into a Chapter 7 before it is dismissed. This can be accomplished by consulting your bankruptcy attorney who is familiar with the laws and procedures.

After You File, Bankruptcy, Bankruptcy Video Vault, Chapter 13, Chapter 7, Duncan Law Blog, Video
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6 Responses to “What is the Difference Between a Bankruptcy Discharge and Dismissal?”

  1. Sandra says:

    In my case I filed BK7 in 12-2008 and it was dismissed (5-09) without a discharge due to a court fee I did not pay. I applied for the waiver of the fee but it was not granted. I am in the process of re-opening the case and paying the fee so that they will correcty discharge my case but it’s been 5 years. what will happen with the original discharge date on my credit reports? will it remain the same or will it show that my case (assuning they will discharge) has just been discharged this year? I am concerned becuase I am planing on buying a house at the end of the year and I am worried they will re-set dates on my credit report.

  2. Damon Duncan says:

    Sandra,

    It’s really going to depend on what the bankruptcy judge says and how they rule. I don’t know where you are located so I can’t answer specifically about your situation unless you are in the Middle District of North Carolina. However, I would guess that your proper discharge date would be the one coming up, not the old one. You, technically, couldn’t receive a discharge before so it never actually happened. Of course, that doesn’t mean the credit bureaus won’t say that it was the old date. I hope this helps at least a little bit. Thanks!

    Damon Duncan

  3. Name says:

    I have been dismissed in my first ch13 and refiled for my second. I then chose to have it dismissed and I am filing for my third. My meeting of the creditors is next week and I just received a letter from my mortgage company’s lawyer saying they are asking for denial of it cuz they aren’t getting enough. Does this mean I will be denied this third filing and lose my childhood home?

  4. Damon Duncan says:

    Anonymous,

    It’s tough to really give you an answer to that question because I don’t know why they are objecting specifically. Not getting enough is not a legal argument but I have a feeling their objection is probably more detailed and probably because you aren’t paying the arrearage amount and other mortgage fees back within the 60 month time frame. If you filed with an attorney they should be able to help you fix that. If you haven’t, you should have really used an attorney to help you on this. Going forward I would try contacting the Trustee to see if they will be willing to give you more information on what would need to be done to have a successful Chapter 13 plan. You may also want to see if there are any attorneys that would be willing to be hired on to your case. I understand you may want to save some money by not having an attorney but, as you can see, it could end up costing you your childhood home instead. Good luck with everything!

  5. Cheryl says:

    We filed for Chapter 13 after getting involved in a mortgage scam to save our home. We were in it for 6 months and asked our lawyer to submit a discharge since we had negotiated a modification on our own. The attorney was not happy and very angry with us. We attended both classes mandated and now after almost 2 years we have found it was dismissed not discharged. Can we get the dismissal changed to a discharge? Will the dismissal adversely affect our credit and for how long??

  6. Damon Duncan says:

    Cheryl,

    If you are in a Chapter 13 bankruptcy and do not make it to the end of the bankruptcy then you will receive a dismissal, not a discharge. The dismissal alone won’t adversely hurt your credit…the filing of the bankruptcy itself is what hurts your credit. The problem you could be faced with is you have a bankruptcy on your credit and you possibly still have debts that are outstanding that, otherwise, could have been discharged in the bankruptcy.

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