The pain and frustration caused by crippling amounts of debt can be relieved by a successful Chapter 7 bankruptcy filing. But what happens if your bankruptcy is denied?
Having to deal with a bankruptcy denial can refresh all of the agony that the debt has been causing to begin with. So today we’re going to look at why a bankruptcy could be denied, what you can do if your Chapter 7 bankruptcy is denied, and how you can avoid a denial altogether.
Common Reasons Why Chapter 7 Bankruptcies Are Denied
Approximately 15% of Chapter 7 bankruptcies are denied before they even get into court. This percentage triples when an applicant attempts to apply without the assistance of a bankruptcy attorney. Some of the more common reasons for denial of a Chapter 7 bankruptcy include:
Inaccurate or Incomplete Paperwork and Forms
A bankruptcy petition contains a multitude of forms and schedules. If these are not accurately filled out or if required documentation is missing, the court might deny the petition.
Failure of the Chapter 7 Means Test
To qualify for Chapter 7, filers must pass the “means test,” which assesses their financial means. If a debtor’s income is higher than the state median for a household of their size, they might not qualify.
Fraudulent Activity by the Petitioner
If the court believes a debtor is hiding assets, falsifying records, or trying to defraud creditors, the bankruptcy can be denied.
Previous Bankruptcies
Those who have recently filed for bankruptcy may be barred from filing again for a certain period. For instance, a debtor cannot obtain a Chapter 7 discharge if they received one in another Chapter 7 case within the past eight years.
Failure To Complete Mandatory Credit Counseling
Before filing, debtors must complete a credit counseling course from an approved agency. If this is not done, the bankruptcy can be denied.
Failure to Pay Filing Fee
If a debtor can’t afford the filing fee and doesn’t qualify for a waiver, the court can dismiss the case.
What Can You Do If Your Chapter 7 Bankruptcy is Denied?
A denial might seem like the end of the road, but it isn’t. There are still steps that can be taken, and many of these are dependent on why your bankruptcy was denied in the first place.
Amend & Resubmit Your Petition
If the bankruptcy is denied due to mistakes or missing information, debtors often have the opportunity to correct and resubmit their paperwork.
Convert to a Chapter 13 Bankruptcy
If a debtor doesn’t qualify for Chapter 7 because of the means test, they might be able to file for Chapter 13 bankruptcy, which restructures debt rather than liquidates it.
Appeal the Bankruptcy Court’s Decision
While rare, a debtor can appeal the court’s decision. It’s essential to consult with an attorney to understand the chances of success.
Refile Your Chapter 7 Petition
In cases where the bankruptcy was dismissed because of missed deadlines or other technicalities, a debtor may be able to refile, although there may be waiting periods.
How To Avoid Denial of Your Chapter 7 Bankruptcy
Much like the old saying “an ounce of prevention is worth a pound of cure”, it is best to have your Chapter 7 bankruptcy petition approved on the first try. Taking the right steps before and during your filing will help you successfully complete your bankruptcy case.
Hire an Attorney
An experienced bankruptcy attorney can guide filers through the process, ensuring all paperwork is correct and deadlines are met.
Be Transparent & Honest
It’s crucial to be honest and provide a full picture of assets, liabilities, income, and expenses. Attempting to hide assets or misrepresent facts can lead to denial and potential legal consequences.
Ensure Your Eligibility
Before filing, research the qualifications for Chapter 7 and consult an attorney to ensure you meet them.
Attend All Required Meetings & Hearings
Missing the meeting of creditors (341 meeting) or other mandatory appointments can result in case dismissal. This is especially true of the mandatory credit counseling course.
While Chapter 7 bankruptcy can offer a fresh start for many debtors, it’s essential to approach the process meticulously. By understanding the common reasons for denial, preparing in advance, and seeking legal advice, filers can improve their chances of a successful bankruptcy outcome.