The Three “D’s” of Bankruptcy

Bankruptcy has its own language, so it is important to understand the technical meaning of certain terms. Take, for instance, the difference between a bankruptcy dismissal, denial, and discharge.

A dismissal is a court order that terminates the bankruptcy case. A bankruptcy case may be dismissed upon request of the debtor (called a voluntary dismissal), or after complaint from the trustee, creditor, or other party at interest (an involuntary dismissal). The bankruptcy court may also dismiss the debtor’s case by its own motion. Typically (but not always) an involuntary dismissal may only occur after the debtor has notice and the opportunity for a hearing.

A dismissal generally means that you are either ineligible to be a bankruptcy debtor or has you failed to do something required by the court, by rule, or by the Bankruptcy Code. For instance, if you do not timely complete the required financial management course, you will have your bankruptcy case dismissed.

Some dismissed cases may be reinstated or refiled; however, there are restrictions. If your case was dismissed, there was no discharge.

A denial means a denial of discharge. A denial may apply to one or more debts, or to your entire case. If you are denied a discharge in a Chapter 7 case, you may not receive a discharge in a future Chapter 7 case for any of those debts denied in the previous case. However, you may include those debts in a Chapter 13 case and receive a discharge.

A denial always means something terribly wrong has occurred. A denial always requires notice and a hearing. Some reasons for a denial of discharge include:

  • Intentionally hiding property during your bankruptcy case
  • Lying to the bankruptcy judge or trustee
  • Making false or incomplete statements on your bankruptcy schedules
  • Withholding documents from the bankruptcy trustee

A denial of discharge does not end your bankruptcy case. The Chapter 7 trustee will continue to gather and liquidate any non-exempt assets, but you will not receive the benefits of the Chapter 7 discharge and you immediately lose the protection of the automatic stay.

Discharge

A discharge means that the bankruptcy judge entered an order discharging your personal obligation to pay certain debts. For many, the discharge also signals the end of the case, but not in every case. There are several reasons that a Chapter 7 bankruptcy trustee may keep a debtor’s case open, but the most common reason is to administer assets.

The language of bankruptcy can be very confusing at times. Learning this language will benefit you in the future when discussing whether your case was “dismissed,” “denied,” or “discharged,” especially when dealing with future loans and credit.