Voluntary Dismissal of Your Own Chapter 7 Bankruptcy

Over the past year I have seen a few clients who had filed a Chapter 7 bankruptcy by themselves, without an attorney, and who decided they wanted to dismiss their own bankruptcy. A Chapter 7 debtor has no right to dismiss their bankruptcy. Once you file for Chapter 7 liquidation the Trustee, on behalf of you creditors, has an interest in your assets, and the Trustee or creditors can object to your dismissal. One of our Orlando judges recently issued a decision that discusses the legal standard for voluntary dismissal of a Chapter 7 bankruptcy

In case of In re McDaniel involved a motion to dismiss a Chapter 7 bankruptcy that had been filed primarily to discharge past-due income taxes. Unfortunately, the Debtor miscalculated the rules for tax discharges and found herself facing tax liability after the Chapter 7 would have been completed.

The judge said that Chapter 7 bankruptcy can be dismissed only for cause. The party seeking dismissal has the burden of establishing cause. The judge pointed out that courts have substantial discretion in ruling on a motion to dismiss a Chapter 7. The courts must consider the interest of the various parties involved, including the creditors. In the end, motions to voluntarily dismiss a Chapter 7 bankruptcy are evaluated under equitable principals including what the court see as the best interests of the debtor and prejudice to the creditors resulting from the dismissal.

In this case, the court found no bad faith on the part of the Debtor in filing for bankruptcy protection and no significant prejudice to the IRS. The judge granted the motion to dismiss.