Another common question we get here is if I want to get out of bankruptcy (change my mind) can I? The answer really depends on the case. The Ninth Circuit Court of Appeals has stated that a dismissal of a bankruptcy case is intended to “undo the bankruptcy case, as far as practicable, and restore all property rights to the position in which they were found at the commencement of the case.” In re Plata, 958 F2d 918, 922 (9th Cir. 1992).
In some instances cases are automatically dismissed. For example if a debtor files a bankruptcy petition, but fails to provide all the required schedules or plan within a certain period of time, the case may automatically be dismissed. In the case of a Chapter 7 case, such cases are automatically dismissed on the 46th day after the date of the petition is filed. In San Jose, Chapter 13 cases where debtors fail to provide the requisite filings are automatically dismissed after 14 days. The court can also extend the time to file the documents upon request.
In Chapter 7 cases, a debtor does not have the absolute right to dismiss a case. Such cases can only be dismissed after notice and hearing, and for cause. Cause is not defined, but examples of cause include unreasonable delay by the debtor, nonpayment of fees, and failure to file schedules. Debtors usually want to dismiss a Chapter 7 case in matters where the debtor has assets and does not want those assets distributed to creditors, but wants to instead simply delay some creditor action in the bankruptcy. The problem with that rationale is that once a debtor files a Chapter 7, creditors have a right to a distribution based on the assets of the estate. The trustee has the right to distribute such assets.
One court encountered an instance of a Chapter 7 debtor trying to get out of a pending case. Turpen v. Eide, 244 B.R. 431, 434 (B.A.P. 8th Cir. Iowa 2000). The court there held:
Unlike under Chapter 13, the debtor has no absolute right to dismissal of a Chapter 7 case. In order to succeed in a motion to dismiss, the debtor must make a showing of cause and demonstrate why dismissal is justified. Even if the debtor can show cause, the court should deny the motion if there is any showing of prejudice to creditors. Courts generally consider the following factors when ruling on a debtor’s motion to dismiss: (1) whether all of the creditors have consented; (2) whether the debtor is acting in good faith; (3) whether dismissal would result in an prejudicial delay in payment; (4) whether dismissal would result in a reordering of priorities; (5) whether there is another proceeding through which the payment of claims can be handled; and (6) whether an objection to discharge, an objection to exemptions, or a preference claim is pending.
Chapter 13 cases can be dismissed, subject to a bad faith/abuse limitation, and unless a case was converted from a different chapter of bankruptcy, on the debtor’s request at any time.
The key here is that if you are considering filing a bankruptcy, it is imperative that you understand that you may be required to complete the bankruptcy, and be subject to the bankruptcy’s consequences. If you are not willing to accept those consequences, you may want to consider other avenues.