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What is a Chapter 13 discharge vs. a dismissal?

Sometimes words can appear to be similar, but on closer inspection they have different meanings. If you have been thinking about a Chapter 13 bankruptcy as a debt reduction mechanism, you may have heard the terms "dismissal" and "discharge" both used in connection with it. Are these terms interchangeable? Can a debtor's claim be dismissed by the bankruptcy court?

In fact, there is a significant difference under bankruptcy law between these two words, so they should not be confused for one another. Here is how you can tell them apart:

Discharge: This is the ultimate goal of a bankruptcy petition; by using a Chapter 13 (or a Chapter 7) bankruptcy proceeding, you are seeking to legally and finally eliminate debts even if you cannot pay some of them entirely. “Discharge” is the term that bankruptcy law uses to describe this debt resolution.

Dismissal: This is what you want to avoid in your bankruptcy. "Dismissal" is what happens to your bankruptcy petition if for some reason the bankruptcy trustee of the bankruptcy court concludes that you are not complying with your obligations. Debts and debtors are not dismissed; but you can be if you fail to do what you are required to do. For example, if you fail to pay the required court fees, dismissal of your petition can result.

The most serious way that you can find your petition dismissed is if, once your payment plan is in place, you do not comply with your payment schedule. In that event not only may the trustee move to dismiss your bankruptcy petition, but such dismissal would also remove one of the most important features and benefits of using bankruptcy: the stay against creditor debt collection actions against you. It would effectively be "open season" against you again for debt collectors, and there would be nothing to protect you against them this time.

Helping you to understand the proper meaning of important terms is just one way that your New Jersey bankruptcy law attorney can help you if you have questions about whether bankruptcy is the right solution for you, or if you have made the decision to go ahead with a petition. Your lawyer can also be instrumental in minimizing the possibility that you may find out the hard way what a dismissal really means.

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