What Happens if a Chapter 7 Bankruptcy Filing Is Denied?

A Chapter 7 bankruptcy is a type of bankruptcy referred to as liquidation. In a Chapter 7 bankruptcy, your nonexempt assets are seized and sold to cover your debts. Any outstanding debts are then discharged --- in other words, canceled --- so long as the type of debt in question is not excluded from discharge.

Nondischargeable Debt

Domestic support debts such as child support or alimony; court order debts such as those that result from a lawsuit or drunk driving fine; back taxes; government loans; and most student loans are excluded from discharge in bankruptcy. As such, you will not be able to discharge those debts. If you file a Chapter 7 bankruptcy, your assets will still be liquidated and your other debts --- those that are not exempt --- will still be discharged. If all your debts are exempt from discharge, you will remain legally responsible for them in their entirety, just as if you had never filed the bankruptcy petition. There is no way around exempt debts.

Denied Discharge

Excluding bankruptcy cases that are dismissed for reasons such as nonpayment of fees or converted to Chapter 13 bankruptcies, which involve debt repayment plans, over 99 percent of Chapter 7 petitioners receive discharge, according to the United States Courts website. However, the issue of discharge is complex; in some cases, a Chapter 7 discharge is denied, even though the debt is not exempt. For example, this could happen if someone files a lawsuit with the court or a party of interest files a complaint against discharge. A denial of discharge will only occur if the court finds the petitioner acted in bad faith --- for example, if he committed perjury, failed to produce required documents, did not obey a court order, did not attend the required credit counseling, or committed or attempted to commit fraud, such as concealing, destroying or transferring property.

Appeal

If your Chapter 7 bankruptcy is denied and your debts were not exempt, you may be able to file an appeal with the bankruptcy court. However, while filing an appeal is your right, you will only be permitted to file an appeal if you have grounds. As such, determining your eligibility for appeal is a matter best discussed with an experienced bankruptcy attorney.

Refile

If your Chapter 7 bankruptcy is denied and appeal is not an option, you always have the option to refile your bankruptcy petition. You will, however, have to wait a minimum of 180 days from the date your original petition was dismissed. Further, you will lose the protection of being in bankruptcy; this means your creditors will be able to sue you, garnish your wages, and repossess your property. You will also have to attend credit counseling and submit all new statements of your income, expenses, assets and debts. Likewise, you will have to pay the filing fees again. In other words, when you refile, your petition is treated as though you had never filed for bankruptcy before.

References

• Kimel Law Offices: Chapter 7 Bankruptcy FAQ
• United States Courts: Discharge in Bankruptcy
• United States Bankruptcy Court: FAQ, 21. Can a discharge be denied? 22. What is the difference between a discharge being denied and a debt being declared nondischargeable?
• United States Courts: Chapter 7
• Cornell University Law School: § 727. Discharge