Can Chapter 7 Bankruptcy be Denied?

The “fresh start” that Chapter 7 bankruptcy promises people who have more debt than they can pay, is not guaranteed.

Chapter 7 bankruptcy may be denied, possibly for reasons that don’t have anything to do with whether you are qualified. The road to success is full of speed bumps that include dozens of forms, requirements, rules and court orders. Miss just one and your case may be dismissed.

The good news is that if you – or the attorney you hire – gets the paperwork right and the case moves through the court to the point where debt discharge is determined, the U.S. Bankruptcy Courts says that 99% of Chapter 7 cases succeed.

Unfortunately, many don’t make it that far and their petition is denied.

“Chapter 7 applications get denied more often than people think,” Derek Jacques, of The Mitten Law Firm, in Michigan, said. “In my experience, about 15% don’t even get approved. From there, they can be dismissed before the process is completed for a lot of reasons.”

Why would a Chapter 7 bankruptcy be denied and how can you avoid it? Let’s take a look.

Why Can Bankruptcy Be Denied?

Bankruptcy is complicated. Many denials, or dismissals, are because the person filing slipped up, their circumstances don’t meet Chapter 7 rules, or they’re unwittingly, or deliberately, trying to defraud the system.

The ultimate decision on whether to discharge debt under Chapter 7 lies with the bankruptcy court, so it’s critical that someone who is filing provide all the information the court, and their appointed bankruptcy trustee, ask for. Added to that, meeting deadlines and not leaving out information are key to a successful case. A bankruptcy discharge doesn’t happen without that kind of attention.

The process can be confusing, and involves a lot of documents, steps, and deadlines. A slipup can mean your case will be denied.

“To make sure your application is successful, you should be honest and up front and always follow the advice of your attorney, if you have one,” Jacques said. “If you don’t, then be sure to at least be 100% honest. As long as you have filed everything correctly, your debts will get discharged.”

Some of the major reasons a bankruptcy is denied are:

1. Improper filing
2. Filing too soon
3. Failing the Chapter 7 means test
4. Not paying court fees or making payments
5. Dishonesty and fraud
6. Failure to attend credit counseling

1. Improper Filing

If you file for Chapter 7 bankruptcy, but are not eligible, your petition will be dismissed.

The most common reasons are:

• Debt discharge is only available to individuals, not corporations or businesses (corporations and businesses can file for Chapter 7, but only to liquidate and pay creditors, not to discharge debts).
• Mistakes or omissions in filing documents.
• Filing within 180 days of a bankruptcy petition dismissal caused by not appearing in court or not complying with court orders.
• Filing within 180 days of voluntarily withdrawing a case after creditors who held liens on property filed to recover it.

» Learn More: What Not to Do Before Filing Bankruptcy

2. Filing for Bankruptcy Too Soon

Federal law requires that you wait eight years after debts were discharged after a Chapter 7 bankruptcy to file again, and six years after a Chapter 13 discharge. If you file sooner, your bankruptcy case will be denied.

3. Failing the Chapter 7 Means Test

You must pass the Chapter 7 means test in order to file for bankruptcy. In simple terms, you must prove you don’t have the means to pay your debt.

The first part of the two-part process looks at your gross income for the six months leading up to filing. This is your household income, so it includes your spouse if you live together. If the total is below the median income for your state, as determined by the U.S. Census Bureau, then you can skip the second part.

If your monthly income is not below your state median, you must take the means test. Your household income, assets, and expenses are calculated to determine whether you honestly don’t have the money to pay your creditors.

The calculation isn’t a simple one. It involves filling out many forms, and understanding the IRS rules for what expenses are exempt because they are necessary (a car, home, cellphone, laptop) and which ones are nonexempt (jewelry, baseball card collection, second car, ATV). There are also rules relating to wild card exemptions and other exemptions that differ by state.

The median gross monthly income of those filing Chapter 7 was $2,828 in 2022, and median monthly expenses were $2,855. (Median means that half of those filing were higher, have lower.) Depending on where you live, the median monthly income could be very high, or very low. In 2023, the highest in the U.S. for a one-person household was in Washington, D.C., at $7,187. The lowest was in Arkansas, at $4,263.

Hiring a bankruptcy attorney, someone who’s familiar with the means test rules can help ensure that you pass.

If you don’t pass the means test, you may still be eligible for Chapter 13 bankruptcy, in which the court devises a 3-5 year plan for you to pay back debt, based on your income. Unsecured debt that’s left after the plan has been successfully completed is discharged. About half of Chapter 13 filers successfully make it to the end of their plan.

» Learn More: Chapter 7 Bankruptcy Income Limit

4. Not Paying Court Fees or Making Payments

Filing for bankruptcy is not free, there are fees involved including the $245 case filing fee, $75 miscellaneous administrative fee, and a $15 trustee surcharge. They all must be paid to the clerk of court upon filing. The court allows those who can’t afford to pay the administrative and trustee fees upfront to pay in installments, and in some cases, waives the fees. If fees aren’t waived, however, you must pay them when required, or your case won’t go forward.

There are also fees for transcripts or audio recordings of hearings, record searches, and other case-related items that you may want. Those fees must be paid immediately as well.

» Learn More: How Much Does It Cost to File Bankruptcy?

5. Dishonesty and Fraud

You may not intend to be dishonest or commit fraud when filing for bankruptcy, but as you lay bare your financial life, you may feel the urge to fudge the numbers. Or you may really, really want to keep that 1966 Mustang convertible you restored, even though you only drive it in the summer, so you’re considering passing the title on to your daughter a few months before you file. Don’t do it.

The court will dismiss the case if you’ve been dishonest. You may even end up with a criminal charge or be ordered to pay fines, depending on what you weren’t honest about.

“The most common reason I have seen [for Chapter 7 bankruptcy denial] is dishonesty on the part of the debtor,” Jacques said. “Often, debtors are embarrassed about their debts and lie about them. Some will try to hide assets from the court, which is always a bad idea, as it is fraud.”

Some of the most common bankruptcy fraud by debtors is:

• Withholding financial information
• Hiding assets or income
• Making false statements
• Violating a court order
• Filing bankruptcy to avoid paying a specific creditor
• Failing to disclose a prior bankruptcy
• Defrauding a creditor by hiding or destroying an item that isn’t paid off.

6. Failure to Attend Credit Counseling

Within 180 days before you file for Chapter 7 bankruptcy, you must attend an approved credit counseling course and file a certificate of completion with the court. Once the court has heard your case, you also must complete a debt management course before your debts are discharged. That course will also supply a certificate of completion that must be filed.

Both courses charge fees, which must be paid, or you don’t get the completion certificate. If those certificates aren’t filed, your case will be dismissed.

» Learn More: Credit Counseling vs. Bankruptcy

What Percentage of Chapter 7 Bankruptcies are Denied?

Roughly 99% of Chapter 7 bankruptcy cases result in discharge of debt, not counting those that are dismissed or converted to Chapter 13, according to the U.S. Bankruptcy Court.

That said, a significant number of people who file for bankruptcy may never get to that point, failing in the initial stages of filing. Their case may be dismissed because they don’t qualify, they haven’t filed properly, they haven’t completed courses, haven’t paid fees, or have not been honest with their application. The U.S. Bankruptcy Court doesn’t keep statistics on how many don’t make it through the filing and court process to get to the discharge phase.

The median length of a Chapter 7 case from filing through debt discharge can take a few months or much longer. In both 2021 and 2022 the median length was 113 days in the U.S. Depending on what state you live in, though, it can be quicker or much longer. Southern Iowa was the most efficient bankruptcy court, with a 95-day median. But Wyoming residents had a wait more than triple of that to have their debt discharged, a median of 298 days.

The more on top of filing documents and following court orders you are, the quicker your case will go.

» Learn More: How Much Debt Do You Have to Be In to File Chapter 7?

Get Help in Bankruptcy

Chapter 7 bankruptcy aims to be a fresh start for honest people who are in over their head with debt and have no other alternative. But filing for Chapter 7 bankruptcy also means you will suffer financial consequences for years to come. The bankruptcy will remain on your credit report for up to 10 years, making it hard to get loans (you may need a new car in the next decade, or a roof, right?) and affecting things like insurance premiums and even employment prospects.

Don’t dismiss the importance of the required credit counseling course if you’re considering filing for bankruptcy. Counselors are trained to help you understand finances, help create an affordable budget, and find the best solutions for debt relief that fit your situation. You may learn through counseling that there are better options for you than bankruptcy. That’s why taking the course is required.

Debt.org has a list of most-recommended credit counseling agencies. If you have too much debt and are wondering what to do about it, you don’t have to wait until you’ve decided to file for bankruptcy to check out credit counseling.
If, after credit counseling, you decide that bankruptcy is the best debt relief option for you, hiring a bankruptcy attorney will help you navigate the process. There are a lot of balls to juggle when filing bankruptcy, and you can drop one without even realizing it, causing your Chapter 7 petition to be dismissed or denied.

To further assess what it means to hire a bankruptcy attorney, read “Do I Need a Bankruptcy Attorney?”

Chapter 7 bankruptcy can be denied, but if you take it seriously, follow all the requirements and are honest about your finances, you will be part of the 99% that is debt free and off to a fresh start.