Chapter 7 is Not the Mulligan Chapter: Why You Can’t Always Dismiss Your Bankruptcy Case
Updated: Feb 8
This article was written by Peter Bricks, a Cumming Georgia bankruptcy attorney
Everyone wants a do over in life sometimes. In Chapter 7 bankruptcy however, that is not always possible.
Many times, I will get asked “can I dismiss my bankruptcy case?” The answer to that depends on a variety of factors. The most pertinent question to ask is which chapter the debtor filed. If the debtor filed Chapter 13 bankruptcy, then almost without exception, the debtor can dismiss the bankruptcy case.
Chapter 7, however, is another story. Inevitably, the most popular reason a debtor wishes to dismiss a Chapter 7 case is because the debtor’s trustee has discovered assets to liquidate as part of the debtor’s bankruptcy estate. The debtor does not wish to lose these assets in a distribution to its creditors, so the debtor prefers to dismiss its own case, even though it means the debtor will not get to discharge any debts.
Many debtors might be surprised that in this instance, the Chapter 7 trustee can essentially block the dismissal of the case. The debtor will then have to decide between converting to Chapter 13 or allowing the distribution and Chapter 7 case to continue.
Essentially what the debtor should understand from all this is that Chapter 7 is not a free bite at the apple to see if it can get a discharge without losing any property. Note however than an experienced bankruptcy attorney should be able to detect the likelihood that any assets will be liquidated before the case is filed.
This is not meant to imply that a Chapter 7 cannot be dismissed. There is certainly a chance that even if there are assets to liquidate, the trustee might allow the dismissal to go through for whatever reason. However, the debtor cannot bank on that.
Instead, the more common scenario that the debtor could dismiss its Chapter 7 is where there are no assets to distribute and therefore the creditors are not harmed, but are actually helped, by the dismissal. This is because there were no assets to distribute and the debtor was not discharged of its debts.
However, it is few and far between that this scenario will take place, as the debtor would not have a good reason to dismiss its own case if there were no assets to distribute and it was on path for a discharge. For the debtor to dismiss a “no asset” case, the odds are either the US Trustee or a creditor is challenging the debtor’s discharge.