What Percent of Chapter 7 Bankruptcies Are Dismissed?

Chapter 7 bankruptcy offers individuals a path to financial relief by discharging eligible debts. This process typically involves liquidating non-exempt assets to repay creditors, providing a fresh financial start. While many cases successfully conclude with a debt discharge, some are terminated by the court through dismissal. Understanding the distinction between a discharge and a dismissal, along with the reasons and implications of a case being dismissed, is important for anyone considering this form of debt relief.

Understanding Chapter 7 Bankruptcy Dismissal

Chapter 7 bankruptcy is a federal legal process designed to help debtors eliminate certain types of unsecured debt, such as credit card balances and medical bills. The process involves a bankruptcy trustee who may sell non-exempt assets, with proceeds distributed to creditors. The goal for most filers is to receive a discharge, which legally releases them from personal liability for eligible debts.

A “dismissal” means the court closes the bankruptcy proceeding without granting a discharge. This leaves the debtor responsible for all debts as if the bankruptcy was never filed. While dismissals can occur, the majority of Chapter 7 cases proceed to a successful discharge. Individual debtors receive a discharge in over 99 percent of Chapter 7 cases, excluding those dismissed or converted. This indicates that only a small percentage of cases, typically around 1% to 5%, are dismissed.

Common Reasons for Chapter 7 Dismissal

Bankruptcy courts may dismiss a Chapter 7 case for various reasons, often stemming from a debtor’s failure to comply with legal requirements.

Failure to File Documents

One frequent cause is the failure to file all required documents in a timely manner. Debtors must submit a complete petition, detailed schedules of assets, liabilities, income, expenditures, statements of financial affairs, payment advices, and tax returns. These documents are typically due within a short period, such as 14 days, after the initial petition is filed.

Failure to Attend Meetings

Another common reason for dismissal is the debtor’s failure to attend the mandatory Meeting of Creditors, often called the 341 Meeting. This meeting, mandated by 11 U.S.C. § 341, allows the bankruptcy trustee and creditors to question the debtor about their financial situation. Non-attendance at this hearing can lead to immediate dismissal.

Failure to Pay Fees or Complete Counseling

Cases may also be dismissed if the debtor fails to pay the required filing fees to the court. While installment plans may be approved, missing a scheduled payment can result in dismissal. Additionally, debtors must complete a pre-filing credit counseling course from an approved agency, as required by 11 U.S.C. § 109, and failure to do so can lead to dismissal.

Ineligibility

Ineligibility issues can also result in dismissal. For instance, if a debtor has sufficient income to repay their debts, they may fail the “means test” under 11 U.S.C. § 707. This test prevents abuse of the bankruptcy system by individuals who can afford to repay creditors.

Prior Discharge or Non-Cooperation

Similarly, a case may also be dismissed if the debtor received a prior bankruptcy discharge within a statutory period, such as eight years for a previous Chapter 7 discharge or six years for certain Chapter 12 or 13 discharges. Debtors must also cooperate with the bankruptcy trustee and comply with all court orders, as non-compliance can lead to dismissal. Debtors may also voluntarily request dismissal.

Debtor Responsibilities in Chapter 7

Successfully navigating a Chapter 7 bankruptcy requires debtors to fulfill several responsibilities throughout the process. These include:
Accurately and completely preparing all financial documents, including the bankruptcy petition, schedules, and statements of financial affairs.
Ensuring the timely filing of all required forms and documents with the court and the bankruptcy trustee, including payment advices and tax returns.
Attending all scheduled hearings, such as the 341 Meeting of Creditors, to answer questions under penalty of perjury.
Cooperating fully with the bankruptcy trustee by providing requested information or documents promptly.
Completing mandated counseling courses, including a pre-filing credit counseling course and a post-filing debtor education course.
Paying all required filing fees, either in full or by strictly adhering to an approved installment plan.

Meeting these responsibilities diligently helps ensure the bankruptcy case proceeds smoothly toward a discharge.

Implications of Chapter 7 Dismissal

When a Chapter 7 bankruptcy case is dismissed, it triggers immediate and significant consequences for the debtor.

Loss of Automatic Stay

One primary implication is the loss of the automatic stay, a legal injunction that immediately halts most collection actions by creditors upon filing bankruptcy. Upon dismissal, this protection, established by 11 U.S.C. § 362, is immediately lifted, allowing creditors to resume their efforts to collect debts.

Debts Not Discharged

None of the debts listed in the dismissed case are discharged. The debtor remains fully liable for all outstanding obligations, as if the bankruptcy had never been filed. Creditors can then pursue all available legal means to collect these debts, including lawsuits, wage garnishments, foreclosures, and repossessions.

Restrictions on Refiling

A dismissal can impose restrictions on a debtor’s ability to refile a new bankruptcy case. Depending on the reason for the dismissal, such as failure to appear or failure to prosecute the case, the debtor may be barred from refiling for a certain period, typically 180 days, under 11 U.S.C. § 109. Multiple dismissals within a short timeframe can also limit the automatic stay’s protection in any subsequent filing. Lastly, any filing fees paid to the court are generally not refunded upon dismissal.