Once you file a Chapter 7 bankruptcy case, you can’t necessarily get out of it. So it’s all the more important to make a good decision.
My last blog post was about changing, or “converting,” your Chapter 7 “straight bankruptcy” case into a Chapter 13 “adjustment of debts” one. Today’s blog post is about getting out of a Chapter 7 case and bankruptcy altogether.
Why Would You Want to Get Out of a Chapter 7 Bankruptcy Case?
Your circumstances could change. A relative or friend could die shortly after your Chapter 7 case was filed, unexpectedly leaving you money. If the amount is large enough you may not need to write off your debts in bankruptcy any more.
Or you might just change your mind if you encounter an unexpected problem.
No Direct Right to Dismiss
But once you file a Chapter 7 case, you do not have a clear right to get rid of—dismiss—it.
Why not? If you started the case, why can’t you just end it?
You may not be able to end it because the U.S. Bankruptcy Code does not state that you have a right to do so.
In contrast the Bankruptcy Code DOES clearly state that if you file a Chapter 13 case instead of a Chapter 7 one, you have a right to dismiss the case. The pertinent Code section says that “[o]n request of the debtor at any time… the [bankruptcy] court shall dismiss a case under this chapter .” (Section 1307(b).) There’s no such language about Chapter 7 cases.
Why under Chapter 13 but not Chapter 7? It’s likely because for decades Congress has used a variety of ways to encourage people to file Chapter 13 cases instead of Chapter 7. Chapter 13 involves a court-approved partial payment plan. The ability to back out of a Chapter 13 case at just about any time is just another of these incentives to get people to pay some of their debts instead of discharging them completely.
A Chapter 7 Filing Creates a New Legal Entity
Furthermore, when you file a Chapter 7 case, you’re putting a lot into motion that can get complicated to undo.
You are at least in theory submitting yourself and your assets to the bankruptcy system in order to get the benefits you want from it—immediate protection from your creditors and a discharge of all or most of your debts.
Your filing effectively creates a new legal entity—your “bankruptcy estate”—which includes everything you own as of the day your Chapter 7 case is filed. Usually nothing you own actually leaves your possession, because usually everything you own is protected—“exempt.”
Nevertheless this new “bankruptcy estate” does have a life of its own of sorts, and you can’t always stuff this genie back into its bottle just because you change your mind.
That doesn’t mean you can’t ever get the bankruptcy court to dismiss your case. It just means that you have to have a really good reason. That reason usually must be one that doesn’t just benefit you, but also does not harm your creditors.
Get Good Advice First
It is not impossible to file a bankruptcy case without a lawyer. It’s not even impossible to do so and get a decent result. But you really do have the cards stacked against you if you try to file bankruptcy without an experienced and conscientious bankruptcy lawyer advising you, and handling the case on your behalf.
The majority of people who think they need bankruptcy relief are right. And many of the people who think Chapter 7 is the right tool for their situation are also right. But why take the risk that there may be better tools, or that the timing may be wrong, or countless other possibilities? Why risk getting stuck in a Chapter 7 case if that’s not where you should be?