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Can Bankruptcy be Reversed?

Yes. At any time prior to discharge, a debtor can voluntarily petition to have their bankruptcy case dismissed or reversed. There are multiple factors the Court will consider when determining if a bankruptcy can be reversed. The Court will consider if you own non-exempt assets, whether dismissal will prejudice your creditors, and your reasons for wanting a dismissal. Your reasons to dismiss must be based off good cause. For example, good cause can be determined by proof of financial improvement. Wanting to keep non-exempt property will likely not be good cause to the bankruptcy court. Once you have filed for bankruptcy your non-exempt assets become property of the bankruptcy estate and are under the control of the trustee.

The Court will consider whether reversing your bankruptcy will prejudice your creditors. They do this by looking to see if you own non-exempt assets that can be sold to pay off your creditors or if there is a high probability that your creditors will not get paid if you reverse your filing. The Court determines this by evaluating the circumstances and reviewing your reasonings for the dismissal. You must provide the Court with reassurance that you will be able to pay your debts or have an alternative way to pay your creditors. Even if your creditors may be prejudiced there are scenarios that warrant a dismissal. For example, if you file for bankruptcy then have a medical emergency and obtain copious amounts of medical expenses that cannot be included in the bankruptcy the court will likely find this good cause to reverse and refile to get a fresh start that is promised when filing.

When voluntarily reversing or dismissing your bankruptcy case you must keep in mind that your automatic stay will be lifted. An automatic stay is initiated as soon as you file for bankruptcy and is an immediate halt preventing your creditors from attempting to collect the debts. Creditors will then resume debt collection activities, garnishments, and seizure of assets as they may have been doing prior to the filing, which creates injunctions and protections for the debtor. The bankruptcy filing will remain on the debtor’s credit and may continue to affect credit negatively for 7-10 years, depending on the type of bankruptcy. If there is a circumstance in which you cannot dismiss your Chapter 7, you may be able to convert your Chapter 7 to a Chapter 13. In order to do this you must show the court that you have regular income and are able to pay back your debts. Additionally, as the debtor you must prove to the Court that you are not converting in bad faith.

Another thing that can happen in very particular circumstances is a bankruptcy revocation. This can happen in the year following a bankruptcy discharge if a creditor or the trustee challenges the facts and information that was presented by the debtor in order to get the bankruptcy. If the debtor was not truthful or if the debtor’s statements to the court and trustee were fraudulent, the bankruptcy could be revoked and result in the debtor owing all debts that were discharged in the bankruptcy. You must also keep in mind that once a bankruptcy case is filed, whether Chapter 7 or Chapter 13, it cannot be completely reversed and will appear on a credit report for 7 to 10 years whether or not the case is actually completed.

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Stephanie
Randall

Chief Managing Partner

Colorado Springs

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