For people struggling with severe and burdensome debt, bankruptcy can be one way to receive a fresh financial start. Bankruptcy can allow debtors to discharge certain debts and reorganize others, in order to make them less of a month-to-month burden. With that said, it’s important to realize that the bankruptcy process can be long and complex — and many debtors wonder when the process will actually be over and done with for good.
So, when is a bankruptcy case really over? Many people go into Chapter 7 or Chapter 13 bankruptcy assuming that the discharge is the conclusion of their case — but this is not necessarily fully accurate. While the discharge may be the outcome that the debtor is hoping for when they file, a case is not really over until it is officially concluded by the court, following an official report from a bankruptcy trustee.
Even then, it’s also important to bear in mind that some bankruptcy cases will end without a discharge due to dismissal, while other cases may be reopened or prolonged for one reason or another. Similarly, it’s crucial to remember that the effects of bankruptcy may continue to be felt for months or years even after a case concludes.
Receiving a Bankruptcy Discharge
Broadly speaking, there are two common types of bankruptcy for consumers to be aware of: Chapter 7, and Chapter 13.
Sometimes referred to as a liquidation bankruptcy, Chapter 7 involves the bankruptcy trustee collecting and liquidating the debtor’s nonexempt assets, in order to pay down their debts. In many cases, debtors may still be able to hold onto most of their property, due to state and federal exemptions. A case with no assets to be administered is often known as a “no-asset” Chapter 7 bankruptcy. In most cases, a debtor can receive a discharge from a Chapter 7 bankruptcy within a matter of months.
Chapter 13 bankruptcy — often called reorganization bankruptcy — involves the debtor working with their trustee and creditors to develop a structured repayment plan, to be paid over the course of three to five years. Generally speaking, this involves the debtor making a monthly payment to their trustee, who then distributes the funds to relevant creditors. Chapter 13 bankruptcy is often used by wage earners who cannot use Chapter 7 due to the means test, or who want to hold onto their non-exempt assets. After successfully completing their repayment plan, the debtor may have their remaining debts discharged at the end of the Chapter 13 process.
Receiving a discharge letter removes the debtor’s liability for qualifying debts, which generally includes unsecured debts such as medical bills, credit card debts, and personal loans. It’s important to remember that not all debts are automatically dischargeable in bankruptcy. Once the discharge is issued, creditors will receive a notice. The discharge bars creditors from attempting to make contact or collect on a discharged debt.
Closing the Bankruptcy Case
As noted above, it’s important to remember that a discharge will not necessarily mean the end of the bankruptcy case. Instead, the case concludes when the trustee files a report saying that they’ve administered all of the debtors assets and funds, and the court officially closes the case. Until then, the debtor is still obligated to work with the trustee and fulfill their duties — including cooperating with any efforts to find and distribute non-exempt assets.
There may also be extenuating circumstances that can prolong a bankruptcy case. Most commonly, this means litigation, as the information site NOLO explains. For instance, a creditor may file a lawsuit challenging the debtor’s ability to discharge one or more of their debts, which could delay the discharge and the final report by the trustee. On the flip side, if a creditor violates the automatic stay order or attempts to collect on a discharged debt, the debtor and their attorney may wish to take action of their own.
Can a Bankruptcy Case Be Dismissed Without a Discharge?
Broadly speaking, a successful bankruptcy wraps up once all assets have been distributed and claims paid. At this point, the trustee will issue a final report, and, barring any objections, the court will issue a final decree, closing the case. However, it’s also important to remember that not all bankruptcy cases receive a discharge. A bankruptcy case can be dismissed at various points throughout the process, for a number of different reasons. Most commonly, a case is dismissed because the debtor has made an honest mistake, failed to live up to their commitments (such as making timely payments), or attempted to commit fraud or intentional misconduct.
A dismissal occurs when one party in the bankruptcy — such as the debtor, trustee, or a creditor — files a motion. A debtor may seek a voluntary dismissal, and file the motion themselves. If the motion comes from the trustee or creditor, it is considered an involuntary dismissal. If the case is dismissed without prejudice — in a situation where the debtor makes a mistake or fails to complete paperwork — the debtor can generally file for bankruptcy again straightaway. If the case is dismissed with prejudice — due to unethical behavior on the part of the debtor — the debtor must wait before filing again, and may not be able to have certain debts discharged.
Can a Bankruptcy Case Be Reopened?
A bankruptcy case can certainly be reopened — and there may be situations in which the case must be reopened. Most often, a case is reopened because new information comes to light — for instance, if an interested party (the trustee, the debtor, or a creditor) becomes aware of a non-exempt asset that should have been included in the case. A debtor may also seek to reopen the case to address ongoing issues — such as to include a debt that they forgot to list, or to deal with a creditor attempting to collect on a properly discharged debt.
What Are the Lasting Impacts of Bankruptcy?
It is important to keep in mind that bankruptcy is not always an “open and shut” proposition. In addition to unique wrinkles that can extend or complicate a case, even a routine bankruptcy can have long-term effects that debtors should be aware of. For instance, a Chapter 7 bankruptcy can remain on your credit report for up to 10 years, while a Chapter 13 can remain for seven. This can make it more difficult to receive new lines of credit, receive financing, or make major purchases, such as buying a home with a mortgage. However, it’s also important to remember that some people tend to overestimate the impact of these “aftereffects” of bankruptcy, and there are many common steps that consumers can take to repair their credit, rent or buy a home, and generally move forward in order to take advantage of their fresh financial start.
Have Any More Questions About Bankruptcy?
Bankruptcy can be complex and time-consuming. It’s a daunting prospect for many debtors, and there’s no denying that this process comes with many moving parts and elements to consider. Making a mistake or even overlooking one simple variable could mean the difference between successfully discharging your debts — or receiving a dismissal, and ending up right back where you began.
One of the most effective ways to make the bankruptcy process work for you may be to consult with an experienced local bankruptcy attorney. A legal professional and their team can provide the insight and working knowledge it takes to make it through this complicated process with all of the i’s dotted and t’s crossed. An attorney can help you create schedules and complete paperwork on time, handle negotiations and compliance, and offer guidance and insight every step of the way — whether you’re still exploring all of your debt relief options, or looking to move forward and make the most of your new opportunities after bankruptcy.
If you’re looking to continue the conversation with experienced bankruptcy attorneys in the Chicagoland area, don’t hesitate to get in touch with the Gunderson Law Firm. Our staff can help to provide you with actual, straightforward answers specific to your situation.
At the Gunderson Law Firm, we take all steps possible to protect our clients and their assets immediately and throughout the bankruptcy process, while also offering counseling on realistic ways to avoid serious debt issues in the future. Drop us a line if you’d like to continue the discussion online or in-person.