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Can Chapter 7 Bankruptcy Be Denied?

Can Chapter 7 Bankruptcy Be Denied?

Filing for Chapter 7 bankruptcy can be a stressful process. You may be wondering if your case could be denied and what that would mean for getting your finances back on track. The good news is that most Chapter 7 cases are approved, but there are some situations where the court could deny your request.

Overview of Chapter 7 Bankruptcy

First, a quick refresher on what Chapter 7 bankruptcy entails. This type of bankruptcy liquidates your assets to pay back as much debt as possible. Any remaining unpaid debt is discharged at the end of the case so you get a fresh financial start.To qualify for Chapter 7 bankruptcy, you’ll need to pass the means test, which looks at your income and expenses. You also can’t have too much equity in certain assets like a house or car. The court needs to verify that you truly can’t afford to repay your debts.

Reasons a Chapter 7 Case Could Be Denied

There are a few main reasons why the bankruptcy court could deny your Chapter 7 case:

1. You Don’t Pass the Means Test

The means test compares your average monthly income over the last 6 months to the median income for your state and household size. If your income is too high, you won’t qualify for Chapter 7.However, some exceptions allow you to deduct expenses for medical bills, car loans, child support, or other circumstances from your monthly income amount. This can help you pass the means test.

2. The Court Finds Fraud

The court and your trustee will review all the information in your bankruptcy paperwork to check for signs of fraud. This includes inaccurate or false information about your assets, income, expenses, debts, etc.If fraud is discovered, your Chapter 7 case will almost certainly be dismissed. You could even face criminal charges for bankruptcy fraud. So it’s critical to fully disclose everything accurately.

3. You Had a Recent Chapter 7 Discharge

You typically have to wait 8 years between Chapter 7 discharges. If you file again too soon, the court will deny your new case. There are exceptions if you can prove the financial hardship is due to circumstances beyond your control.

4. The Judge Determines You Have “Abused” Bankruptcy

The judge can deny your Chapter 7 petition if they think you have “abused” the bankruptcy process in the past. This includes if you’ve had multiple bankruptcies dismissed over the last year or a previous case was dismissed for fraud.

The Bankruptcy Trustee Can Also Deny Your Discharge

The trustee is the government-appointed person who oversees your Chapter 7 case. They have the power to deny your discharge for a few reasons:

• You conceal, destroy, or refuse to provide records and documents about your finances
• You lie under oath during creditor meetings
• You can’t adequately explain loss of assets
• You fail to complete the required financial management course

If your discharge is denied, you don’t get debt relief and still owe creditors. This leaves you worse off than before filing.

What Happens If Your Chapter 7 Case Is Denied?

If the judge dismisses your Chapter 7 case before your debts are discharged, here’s what you can expect:

• Collection Activity Resumes: Creditors and debt collectors regain the legal right to pursue debts through calls, letters, lawsuits, garnishments, etc.
• Foreclosure/Repossession Is Back On: Without bankruptcy protection, mortgage lenders, auto lenders and other secured creditors can restart foreclosure and repossession proceedings.
• Interest & Fees Accumulate: Interest, late fees, penalties and other charges start rapidly compounding again.
• Worse Credit Impact: A denied Chapter 7 case will show on your credit reports and likely lower your credit score more compared to an approved discharge.
• Can’t Refile for 180 Days: You have to wait at least 180 days to file another bankruptcy case unless you can prove your financial situation drastically changed.

Essentially, you’re stuck back at square one working to resolve debts without bankruptcy relief. It can feel incredibly defeating.If your case is denied, don’t panic. Talk to your bankruptcy lawyer right away about options to appeal, convert to Chapter 13 instead of Chapter 7, or develop a new debt repayment plan. Getting expert advice tailored to your situation can help you recover.

Tips to Avoid Denial & Get Approved

Now that you know why Chapter 7 cases sometimes get denied, here are proactive tips to improve your chances for a smooth approval process:

• Review eligibility thoroughly: Honestly evaluate if you meet the means test and other Chapter 7 requirements before filing.
• Disclose everything accurately: Missing information or lies on bankruptcy forms are red flags for denial.
• Gather documentation: Have pay stubs, tax returns, debt records, etc readily available for your attorney.
• Take the credit counseling course: Complete the mandatory pre-filing credit counseling briefing.
• List all assets and debts: Omitting assets like inheritances or debts like taxes can cause denial.
• Explain any shifts: Inform the court if you recently sold assets, changed jobs, received gifts/insurance settlements etc.
• Show up to court meetings: Attend all 341 creditor meetings and hearings related to your case.
• Ask questions: Clarify anything you don’t understand with your bankruptcy lawyer.

Being organized and thorough in preparing your paperwork creates a strong case for approval. And an experienced attorney can help avoid missteps so you can successfully file Chapter 7.

Key Takeaways

The vast majority of Chapter 7 bankruptcy petitions are approved, but denial is possible if:

• You don’t pass the means test
• Fraud is detected
• You’ve filed recently
• The judge thinks you “abused” the system
• The trustee denies your debt discharge

Denial leaves you still fully responsible for debts without the protections of bankruptcy. To improve your chances, disclose everything accurately, gather financial documents, take required courses, show up for court, and ask your lawyer questions.With careful preparation using reputable legal help, you can feel confident your Chapter 7 case will proceed smoothly for the fresh start you deserve.

Resources

Can I Be Denied Chapter 7 Bankruptcy?What Happens if a Chapter 7 Bankruptcy is Denied?This Is How to Avoid Chapter 7 Bankruptcy Denial

References

https://www.findlaw.com/bankruptcy/chapter-7-bankruptcy-overview.htmlhttps://www.lawinfo.com/resources/bankruptcy/when-can-chapter-7-bankruptcy-be-denied.htmlhttps://www.nolo.com/legal-encyclopedia/when-chapter-7-bankruptcy-case-dismissed.htmlhttps://www.avvo.com/legal-guides/ugc/can-a-chapter-7-bankruptcy-be-denied–options-if-it-ishttps://www.tateesq.com/learn/can-a-chapter-7-bankruptcy-be-denied-or-dismissed