In a chapter 13 bankruptcy case, the case is typically closed shortly after the debtor completes their repayment plan and receives a discharge of their debts or shortly after their case is dismissed by the court if they are unable to successfully complete their plan.
Alternatively, in a chapter 7 case, the bankruptcy discharge normally automatically occurs 60 days from the date of the creditor’s meeting (a.k.a. the “341 meeting”).
Possible Temporary Delays to Chapter 7 Bankruptcy in MN
The court may temporarily delay the discharge in some circumstances, such as upon the request of a trustee conducting a continuing investigation into a case in which the debtor’s right to a discharge may be questionable (i.e. when the debtor appears to engaged in wrongful or fraudulent activity). Receiving the discharge does not necessarily mean that the case is concluded.
When the Court Formally Closes the Case After Discharge
A bankruptcy case is concluded only upon the court formally closing the case after the discharge occurs. Notably, the discharge immediately goes into effect upon being ordered by the court, regardless of whether the case is still open or not, and the debtor remains protected from creditors, at all times, thereafter, so long as the discharge is not revoked due to the debtor’s wrongdoing.
Filing Final Reports With the Court in Minnesota
Chapter 7 trustees are required to file final reports with the court. The report may indicate there is no property of the debtor’s of which to liquidate to pay creditors (aka a “Report of No Distribution”), in which case the case is usually automatically closed shortly after the debtor receives their discharge.
If there are such assets available to liquidate to pay creditors, the trustee will go through the formal process of administering the estate by liquidating the property, paying creditors in accordance with their filed claims, and then, entering a final report detailing such payment distributions. The case will typically be automatically closed by the court shortly thereafter.
A Chapter 7 Case May Be Reopened for Several Reasons
Does this mean that the debtor’s case will necessarily remain forever closed? The answer is that a debtor’s case may be reopened for a number of reasons. For instance, a case can be reopened if it’s discovered that the debtor had property at the time of filing for bankruptcy which was not disclosed in their bankruptcy petition.
The bankruptcy code requires that the debtor must disclose any entitlement to an inheritance, life insurance proceeds or property from a divorce settlement that occurs within the 180 period from the date that they filed their petition. The debtor is obligated to disclose these types of situations to the bankruptcy trustee. The bankruptcy trustee will then decide whether it is worthwhile reopening the case and whether there is any nonexempt property to be taken to pay creditors. The debtor is well advised to disclose these types of situations to the trustee as to avoid any risk of the trustee discovering them themselves and asking the court to revoke the debtor’s discharge for failing to do so.
When a Debtor Wants to Reopen Their Chapter 7 Bankruptcy in MN
A debtor themselves may also wish to reopen their bankruptcy case if they accidently omitted a creditor from their bankruptcy petition that should have been included. Typically, a creditor must be listed in the bankruptcy petition and served with formal notice of the bankruptcy case in order for the debt owed to such creditor to be discharged.
Notably however, the discharge would still apply to a debt owed to a creditor that was omitted if the creditor had actual knowledge of the bankruptcy when it was filed. The debtor may wish to reopen their case in such a situation to add the omitted creditor to their petition and, if necessary, to get the bankruptcy court judge to determine whether the debt is dischargeable.
When Creditors Continue to Pursue Debt After Discharge in MN
Another situation where a debtor may want to reopen their bankruptcy case is when a creditor continues to pursue a debt after the debtor receives their discharge. Certain debts such as recent tax debt, court-ordered child support or alimony, government fines and penalties, and student loan debt (unless the debtor successfully challenges its dischargeability in a separate court proceeding) are not discharged by the bankruptcy and may be continued to be pursued by these types of creditors against the debtor after the discharge.
Other creditors, assuming they were notified of the bankruptcy, as just described above, are forbidden from attempting to collect on the discharged debts by the court order of discharge. If a creditor violates the discharge order by trying to pursue collection of the discharged debt, the debtor may consider reopening their bankruptcy case for the purpose of having the court impose sanctions against the creditor for doing so, such as ordering the creditor to pay court costs, fines, and even paying the debtor’s attorney’s fees.
When a Debtor's Misconduct Requires a Discharge Revocation
Lastly, a debtor’s case may be reopened in a case by a trustee in rare cases where the debtor’s misconduct justifies revocation of their discharge. Examples of such misconduct include, failing to disclose property possessed by the debtor at the time of filing, failing to report an entitlement to property from an inheritance, life insurance proceeds, or a divorce settlement with the 180 period from the date of filing, refusing to comply with a court order (i.e. not abiding by a court-ordered settlement agreement with the trustee), or engaging in any kind of fraudulent activity with the bankruptcy court (lying to the trustee or concealing assets) that becomes known to the trustee after the discharge is entered.
Generally, once the discharge order is entered by the court it is final and bankruptcy cases are not often reopened. However, for the reasons stated above, it is advisable for a person considering filing for bankruptcy to discuss their case with an experienced bankruptcy attorney.
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An attorney can make sure the debtor complies with all of their obligations under the bankruptcy law, make sure the debtor has the best chance of obtaining their discharge (and keeping it), and minimizing the risk of having to reopen their case once it’s already been closed. See us at LifeBackLaw.com!
