Bankruptcy is designed to be somewhat of a safe haven for debtors. But if the system is abused it will turn against them. Failure to follow the court's rules of procedure and disclose all the required information can result in a bankruptcy case being dismissed and thrown out of court. Even more seriously, a violation can result in a judgment against discharging the debtor's debts and result in their losing all the exemptions and protections usually afforded by the bankruptcy process.
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Incomplete or Incorrect Filing
The paperwork needed to initiate a bankruptcy proceeding is considerable. One reason a bankruptcy petition would be denied is if the filing is incomplete or incorrect. If forms are missing or have lines that are not filled in, this can be considered an incomplete filing, and the judge could dismiss your case. If the wrong forms are submitted, this could also result in your petition being denied.
To file for bankruptcy, you must first undergo a mandatory credit counselling program. Failure to complete the program could invalidate a bankruptcy proceeding. Additionally, each chapter of bankruptcy has its own requirements, such as the means test for Chapter 7 and the five-year plan and debt ceiling for Chapter 13. If you do not meet the qualifications for the type of bankruptcy you've filed, the judge can instruct you to refile or simply dismiss your case.
Another reason you bankruptcy could be denied is if you've abused or attempted to defraud your creditors. This would be alleged if you dramatically ran up all your credit cards and then immediately filed for bankruptcy. If the records give the appearance that you used the fact that you were going to apply for bankruptcy to incur expenses you otherwise would not have, your creditors can bring this to the court's attention and have your petition denied. In serious cases, criminal charges can result.
Failure to Disclose
A more common reason for denial of a bankruptcy petition is failure to fully disclose all your assets. A bankruptcy filing must be thorough to be fair to your creditors. Trying to hide assets, or even accidentally failing to disclose them, can result in your right to bankruptcy protection being denied. There is sometimes leeway on the extent of assets that would trigger this response, with only those that make a significant difference being treated severely. Nevertheless, bankruptcy attorneys advise their clients to err on the side of caution and disclose everything to avoid dismissal.
Types of Debt
Finally, not all kinds of debt can be discharged under bankruptcy. Tax obligations, judgments against you, student loans, alimony and child support cannot be swept away in bankruptcy like credit cards and other kinds of debt. Debt incurred in the commission of a crime, including any reckless act or violation of U.S. securities laws, also cannot be discharged in bankruptcy. You can still file if you have these kinds of debts, but if they are your only debt, there will be no action to take and your case will likely be dismissed. You will also be denied if you are foolish enough to file for bankruptcy in federal court while a fugitive from the law.
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