Sometimes you want a do-over. In golf it’s called a mulligan. In bankruptcy, it’s called “good luck with that.”
Whether or not you can dismiss your bankruptcy depends on several things, the most important of which is what chapter you’re in. If you’re in Chapter 13, you’re in luck. A Chapter 13 can be dismissed or converted to a Chapter 7 at any time. A Chapter 7 dismissal is subject to court approval.
Why Chapter 13?
The simple reason that a Chapter 13 can be dismissed while a Chapter 7 cannot, is that the Bankruptcy Code says it can. Section 1307 of the Code says that a debtor can dismiss a Chapter 13 at any time or may convert the case to Chapter 7 at any time. As to why Congress made that distinction, it could be that it wanted to encourage people to file Chapter 13 and repay part of their debt, so it gave the option to get out or convert. Chapter 13s last years, usually 3-5, and things change during that time. Giving a debtor the option to back out even years after filing is an incentive to try Chapter 13.
Conversion or Dismissal?
The Bankruptcy Code allows dismissal of Chapter 13 or conversion of the case to Chapter 7 upon the debtor’s request. Which is better? It depends on the circumstances. Most people start a Chapter 13 either because they don’t pass the Means Test, or they have an asset they might lose in Chapter 7. If employment circumstances change so that the Means Test isn’t an issue any longer, or if they no longer care about the asset they were trying to protect, conversion might be a better choice, because the debtor will still receive a discharge in the Chapter 7. If the debtor dismisses, all the creditors are free to pursue collection efforts against the debtor.
Dismissing Chapter 7
Chapter 7, on the other hand, isn’t as easy. In fact, it might be impossible. In order to get a dismissal of a Chapter 7 a debtor must get the court’s approval. That requires that the debtor demonstrates that everyone, both the debtor and her creditors, will be better off if the case is dismissed.
The most common reason for wanting to dismiss a Chapter 7 is that the debtor realizes that she’ll lose some assets when the trustee sells them. It’s hard to convince the court that creditors will be better off if the case is dismissed when those creditors are looking at a source of partial repayment from the bankruptcy estate. In those cases, it’s well-nigh impossible to get a dismissal.
On the other hand, if there are no assets to be distributed in Chapter 7, the court will want to know why you, as a debtor, will be better off if the case is dismissed and creditors are free to take judgment, garnish wages and do all the other nasty things creditors can do. If you remain in bankruptcy and receive a discharge, you’ll be better off.
Filing bankruptcy, especially Chapter 7, isn’t something to be done lightly. It’s not a situation where you can say, “let’s give it a try. We have nothing to lose.” Before you file, make sure you understand the implications of what you’re doing. If you have bankruptcy questions, contact us here, or call or text (801) 413-3708, or email email@example.com.