A dismissal without prejudice is a technical legal term that can have critical implications in the bankruptcy context. Dismissing a bankruptcy case “without prejudice” means that the debtor can file for bankruptcy again at any time. They will need to fix certain errors or omissions in the original filing to succeed on the second attempt. To fend off collection efforts, they may need to file a motion for an automatic stay or an extension of the automatic stay when they file again.
A court may dismiss a bankruptcy case without prejudice when the debtor fails to meet all of the requirements for completing the case and getting a discharge of qualifying debts. It also may dismiss a case with prejudice, which means that you cannot file for relief within the time provided by the dismissal order, but this is unusual as long as the debtor does not commit fraud or fail to comply with court orders. A dismissal without prejudice is usually based on a procedural error.
Situations Involving a Dismissal Without Prejudice
A bankruptcy judge might dismiss a debtor’s case without prejudice if the debtor does not provide the required documents to the bankruptcy trustee, does not pay filing fees (and does not have a fee waiver), or omits a required form from the paperwork that they file with the court. Also, a case might be dismissed without prejudice if the debtor fails to appear at the Section 341 meeting of creditors or the confirmation hearing in a Chapter 13 case.
Other situations that may lead to a dismissal without prejudice include failing to keep up with the required payments under a Chapter 13 repayment plan or failing to complete the credit counseling and debtor education courses that are required to obtain a discharge. In some situations, a debtor will try to file for bankruptcy under a chapter for which they are not eligible, and the court may dismiss the petition without prejudice so that they can file under an appropriate chapter.
Impact on the Automatic Stay
One of the main benefits of filing for bankruptcy is the protection provided by the automatic stay. This prevents most creditors from pursuing collection efforts against you. However, the availability of the automatic stay might create an incentive for some debtors to file for bankruptcy repeatedly so that they can indefinitely delay collection efforts. To prevent this situation, the automatic stay is subject to limits for debtors who file for bankruptcy multiple times.
Generally, if you file a bankruptcy case within one year after a court dismissed a previous bankruptcy filing, the automatic stay will last for only 30 days after you filed the new bankruptcy. If you file for bankruptcy after you received two dismissals in the last year, no automatic stay would apply. Despite these rules, a debtor can seek permission from the court to apply the automatic stay if they can show good cause for this rapid series of filings. A bankruptcy judge has discretion to grant an automatic stay if they are persuaded that the debtor acted in good faith.