Discharged vs. Dismissed Bankruptcy
- 2 min read
- A discharged bankruptcy is good for the consumer.
- A dismissed bankruptcy indicates the filing was defective in some way.
- Learn about reaffirmation.
What Happens if a Bankruptcy Filing is Dismissed
A typical bankruptcy filing results in one of two outcomes: Discharge or dismissal. A discharge prevents creditors from collecting a bankruptcy filer's debts, and ends the filer's personal liability for his or her debts. The discharge gives the filer a fresh start and is a central principle under federal bankruptcy law. A dismissal, on the other hand, short-circuits a bankruptcy and ends the case before it reaches a discharge. A dismissal may result from failing to follow procedural rules to the bankruptcy court finding that the filer misstated facts on his or her bankruptcy documents.
If you filed a bankruptcy case that was dismissed, consult with your bankruptcy attorney to learn if you can correct the defects in your documents and refile. If you filed the documents yourself and without the aid of a lawyer (called pro per in the legal trade), consult with a lawyer who has bankruptcy experience. In many cases, a consumer can re-file a previously dismissed case once he or she has corrected the problems that led to the dismissal. For example, if a case was dismissed because the filer did not pay the filing fees, refilling the case and paying the filing fees may allow the case to proceed to discharge.
Generally speaking, all debts must be included in a bankruptcy filing. A filer who wishes to keep his or her mortgaged home and/or vehicle under loan can contact the secured lenders to negotiate "reaffirmation" agreements. When a filer reaffirms a debt, the filer and the creditor agree that, although the secured debt was included in the bankruptcy filing, the filer will continue making payments on the loan and voluntarily assumes liability for the loan after the discharge. In return, the creditor will allow the filer to keep possession the property securing the obligation. Reaffirmation agreements are commonly used in consumer bankruptcy cases, and bankruptcy lawyers can advise you if you need to reaffirm any of your debts.
Note, however, that reaffirmation is voluntary for a mortgage. If you have a mortgage and want to continue to pay the monthly payment and keep your property you can without reaffirming. However, there is a dark-side to not signing a reaffirmation: Your credit score. Because a filer who does not reaffirm a mortgage has no personal liability for the mortgage, the mortgage servicer will not report these payments to the consumer credit reporting agencies (the credit bureaus). This means that even though a bankruptcy filer may continue to make all of their payments on time, this will not aid the homeowner's credit score.
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q4 2022 was $16.91 trillion. Auto loan debt was $1.55 trillion and credit card was $0.99 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Indiana, 28% have any kind of debt in collections and the median debt in collections is $1721. Medical debt is common and 16% have that in collections. The median medical debt in collections is $748.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.