What’s the difference between bankruptcy dismissal & discharge?

If you’ve been researching bankruptcy as an option for solving your debt issues, you may have come across the terms “dismissal” or “dismissed” and “discharge.” At first glance, these may seem like the same thing, but they’re actually very different. Let’s take a look at why.

The different types of bankruptcy

To start with, there are different types of bankruptcy for consumers. Chapter 7, if you qualify for it, allows for your debts to be wiped clean. Chapter 11 and Chapter 13 cases require paying back some of the amounts you owe over a period of time determined by the bankruptcy court overseeing your case. Determining which chapter you qualify for can be difficult, which is why it’s smart to find a professional like a bankruptcy attorney to help you through the process.

Related articles:
Bankruptcy: The differences between Chapter 7 & Chapter 13
Bankruptcy: The differences between Chapter 7 & Chapter 11

Paying your creditors

Once your bankruptcy case is filed and approved, you’ll make your payments to a trustee designated by the court to oversee your case. They will manage the disbursement of those payments to your creditors over the life of your bankruptcy case – usually three to five years under Chapter 13 (Chapter 11 can take longer depending on the particulars of the case).

If you fall behind on your payments or stop making them altogether, you are defaulting on your bankruptcy agreement and the trustee could recommend to the judge who approved your bankruptcy agreement that the case be dismissed.

What is dismissal?

If your bankruptcy case is dismissed it basically means you are back to square one. You are no longer under the court’s protection from creditors and they may begin contacting you again seeking payment. If you don’t arrange to somehow settle your outstanding debts, your creditors can also now sue you.

Obviously, you want to avoid dismissal. It is possible to do that by talking with your trustee and attorney, especially if your financial situation has changed since your case was approved by the court. For example, if you filed Chapter 13 and you are now unemployed, it may be possible to file for Chapter 7 and have the remaining debt absolved.

What is discharge?

Though it may sound similar, discharge is the exact opposite of dismissal when it comes to bankruptcy. It means you have fulfilled the obligations under your bankruptcy agreement, your debts are paid and your case is finalized.

What this means for you is that you are finally on the road to financial recovery, particularly as it pertains to your credit reports. Your bankruptcy will remain on your credit reports for seven or 10 years depending on the chapter type you filed, but it will now begin to weigh down your credit scores less and less.

After discharge, it is possible to begin applying for new lines of credit, though it’s highly unlikely to get the best available rates. It’s also good to apply only for credit available to people with lower credit scores; otherwise, you’ll likely just be faced with rejection letters.

Related article: Six steps to rebuild your credit after bankruptcy