What is the Difference between a "Dismissed Bankruptcy" and a "Discharged Bankruptcy"
There's a lot of confusion when it comes to discussing a dismissed bankruptcy and a discharged bankruptcy. Both have entirely different meanings and a dismissed bankruptcy does not mean your debts have been wiped away.
Dismissed Bankruptcy Meaning
A dismissed bankruptcy takes place when the terms of the BK have not been met, fraud has been discovered or the bankruptcy court determined the filing is not appropriate. When you file for bankruptcy your aim is to have the debts that are included be wiped away. Meaning you are no longer responsible for paying them back.
A bankruptcy dismissal can take place for a variety of reasons but typically it's because the debtor failed to complete the terms of the bankruptcy including debtor education courses that are required. A chapter 7 bankruptcy dismissal is usually because of this reason or because fraud was discovered. Typically a chapter 13 bankruptcy dismissal is caused because the debtor did not qualify or meet the terms set forth for payback of his debts.
The bankruptcy trustee is who you need to please when you file. The trustee will require certain items of proof from you before processing the bankruptcy. Those items can be paystubs, assets on hand, latest statements from your creditors and so on. If you fail to provide what is needed the trustee can dismiss your bankruptcy. You will have to file all over again.
When a bankruptcy is dismissed the automatic stay stops. This means you are no longer protected from collection activity and your creditors can go after you for payments. Your mortgage, car or any other secured loans could be seized.
A dismissed bankruptcy will be reported to your credit reports in most situations. This happens when the court processes the dismissal and notifies the credit reporting agencies. You can dispute it with the credit bureaus and if the court fails to reply to the investigation it could be removed.
To avoid having your bankruptcy dismissed be sure to follow all of the rules set forth by the trustee and your attorney. Have your bank statements, pay stubs, debtor education certificates and assets all clearly laid out. Do not miss any ordered court hearings for your bankruptcy or this could also result in a dismissal.
Discharged Bankruptcy Meaning
A discharged bankruptcy means that all of your included debts have been successfully wiped away. This is the optimal outcome when you file bankruptcy. A discharge order will be provided to the debtor and the creditors advising that the BK court has approved your bankruptcy.
Once a bankruptcy is filed you'll be awarded the automatic stay. This is protection from your creditors while the bankruptcy process continues. This can go on for 4-6 months as that is the typical time it takes to discharge a bankruptcy.
A discharged bankruptcy will affect your credit. There is no way around this. Once the BK is dismissed though, your creditors will need to update your credit reports to reflect the balances to zero and the status as "included in BK".
Any attempt to continue reporting a balance could be seen a violation of the automatic stay because it can be viewed as an attempt to collect the debt. It's basically your creditor holding you hostage by continuing to make it appear as though you owe money when in fact, you don't. You can dispute these with the credit bureaus simply by writing a dispute letter and providing a copy of your bankruptcy papers. The debt will be listed if it was included.