The ultimate goal of any bankruptcy case is the discharge of debts. In a Chapter 7 case, the majority of a debtor's debts are discharged after a liquidation of any non-exempt property. In a Chapter 13 and Chapter 11 case, a discharge of the majority of debts is granted after payment of a certain amount of money to creditors over a period of time. After a discharge, the bankruptcy court usually will close the case. Case closure is an administrative process that is unrelated to the discharge.
Automatic Stay and Closure
The most powerful protection of bankruptcy is the automatic stay. The stay goes into effect immediately upon the filing of a bankruptcy and prevents any party from instituting or continuing legal proceedings against the debtor. The automatic stay will expire on the earlier of the discharge or the closure of the case. If for some reason the case is dismissed and closed prior to the discharge, the automatic stay will expire. This means that closure of the case has the effect of terminating the stay and permitting any party to continue any legal proceeding against you.
Discharge Versus Closure
The bankruptcy discharge forever prevents any of your creditors from seeking to recover their debts against you personally. Closure of the case generally follows shortly after the discharge and is an administrative procedure initiated by the clerk of the court. If the case is closed prior to the discharge, such as if the debtor fails to pay filing fees or comply with other requirements, the debtor will not receive a discharge.
Chapter 7 Case Closure
In a Chapter 7 liquidation bankruptcy, the case generally is closed 60 days after the meeting of creditors and a week after the granting of the discharge. If the entire Chapter 7 process goes smoothly and no creditor objects to the discharge, the case will be closed within approximately three months of its initiation. If the trustee seizes non-exempt assets and must spend time distributing the assets to creditors, the case will remain open even after the discharge. The Chapter 7 case will remain open as long as there is any activity in the case.
Chapter 11 and 13 Case Closure
In Chapter 11 and 13 cases, the closure of the case generally does not occur until many years after the initiation of the case. This is due to the nature of Chapter 11 and 13 cases. Chapter 11 and 13 essentially involve reorganization of debts and payments to creditors over time. Chapter 13 bankruptcy can last from three to five years. Chapter 11 bankruptcy can last even longer. Therefore, the bankruptcy case will not close until all of the payments have been made, which is usually not for several years.