Chapter 7 bankruptcy offers the promise of a new financial start for what the court calls "honest debtors." Although the actual process of a Chapter 7 bankruptcy is fairly automated after the filing of the initial petition, things can and do sometimes go wrong. A Chapter 7 discharge can be denied for simple paperwork miscues, but in other cases it might be caused by more serious problems. In either case, the reasons for a bankruptcy denial are pretty clear-cut and can usually be avoided with careful preparation.
Chapter 7y bankruptcy forms which are filed using the correct paperwork and processes are accepted more than 99% of the time.
Frequency of Denial
While some Chapter 7 bankruptcy cases are kicked out of court before discharge, statistics indicate that this isn't the norm. According to the U.S. Courts website, when Chapter 7 cases are correctly filed, they result in a successful discharge of debts more than 99 percent of the time.
Reasons for Denial
Denial of discharge after a Chapter 7 case begins is usually due to a lack of honesty on the part of the debtor. Although you might want to keep some financial secrets when you file Chapter 7, the court requires that you bare your financial soul if you want a discharge. If you cover up or destroy financial records, fail to turn over documents requested by the court, make false statements about your finances or hide any money or assets, you're likely to get your case dismissed before receiving a discharge. Be aware that bankruptcy fraud is a serious crime that can result in much more serious consequences than a simple dismissal of your case – you could also face prison time.
Other Technical Reasons
You might also be denied a discharge for certain technical reasons, such as failure to complete the required credit counseling and financial management courses. Some bankruptcy cases are over before they even begin if the debtor fails to file a complete bankruptcy petition or pay the required fees. If one of your creditors objects to your filing, the court will schedule a hearing to determine whether you acted fraudulently with regard to the debt you owe that creditor. If the court upholds the creditor's objection, your discharge may be denied.
Conversion to Chapter 13
Debtors have to pass a means test to qualify for a Chapter 7 discharge. The means test presumes that any debtor who files for Chapter 7 with an income over his state's median income is abusing the bankruptcy process unless he can prove that his expenses are such that he can't possibly pay his debts. These "over-the-median" debtors are often pushed into converting their Chapter 7 cases into Chapter 13 cases as a result. Chapter 13 bankruptcy requires a monthly payment plan to satisfy debts. If the bankruptcy trustee recommends conversion to the court, you can either go with a Chapter 13 or accept dismissal of your Chapter 7 case. All bankruptcy cases require specialized knowledge of federal and state bankruptcy rules but Chapter 13 cases can be particularly daunting. Consider consulting a local attorney before filing any bankruptcy case, especially a Chapter 13 conversion.
- United States Courts: Chapter 7 Bankruptcy Basics
- Nolo: The New Bankruptcy Law: Changes to Chapter 7 and 13
- United States Courts. “Chapter 13 - Bankruptcy Basics.” Accessed Aug. 18, 2020.
- United States Courts. “Discharge in Bankruptcy - Bankruptcy Basics.” Accessed Aug. 18, 2020.
- United States Courts. “Chapter 7 - Bankruptcy Basics.” Accessed Aug. 18, 2020.
- United States Courts. “Instructions, Bankruptcy Forms for Individuals,” Pages 33-34. Accessed Aug. 18, 2020.
- United States House of Representatives. “11 USC 1325: Confirmation of Plan.” Accessed Aug. 18, 2020.
- United States House of Representatives. “11 USC 330: Compensation of Officers.” Accessed Aug. 18, 2020.
- American Bankruptcy Institute. "Success Rates in Chapter 13." Page 1. Accessed Aug. 19, 2020.
- United States House of Representatives. “11 USC 1322: Contents of Plan.” Accessed Aug. 18, 2020.
- Nolo.com "Steps in a Typical Chapter 13 Bankruptcy Case." Accessed Aug. 19, 2020.
- U.S. Bankruptcy Court Eastern District of Michigan. "How to File a Motion for Relief From the Automatic Stay." Accessed Aug. 19, 2020.
John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.