Discharge vs. Closing in Chapter 7

There have been many recent posts with people worried, and some freaking out, that their case has not CLOSED. What you need to realize, in about 95% of cases, the day the case closes is totally meaningless. The discharge has “legal” significance, whereas closing is only of “administrative” significance.

From a debtor’s perspective, there are only 3 dates that matter in a Bankruptcy, the Filing date, 341 meeting date, and Discharge date.

(1) The filing date is important, and has both legal and administrative significance, as it serves as creation date of your BK estate. The BK estate is made up of all assets and liabilities that you accrued before the filing date and a Bankruptcy Trustee is put in charge of the BK estate. The implication being, any asset you earn AFTER the filing date is outside the BK estate and therefore not part of your bankruptcy and beyond the control of the BK Trustee. (there are some windfall exceptions, but they are few). In addition, the filing date puts in place the Temporary Automatic Stay…meaning that a creditor can take no action to attempt to collect a debt that is part, or could be part, of your bankruptcy. The filing date is the day you open a case with the court and a file is opened with the BK Court Clerk.

(2) The 341 meeting is important in that you have to go, enough said. This post is not about the 341 meeting.

(3) Discharge…Discharge is the GOAL of a debtor’s bankruptcy. The legal significance is huge; the main feature of which is that it terminates the Temporary Automatic Stay and creates a Permanent Injunction against a creditor from taking any action to collect a dischargeable debt that is, or could have been, part of the Bankruptcy Estate. From a debtors perspective, the date of Discharge is the END of the bankruptcy. Moreover, nearly all objections to your bankruptcy must be filed BEFORE the date of discharge, or an extension must be granted by the court. Once you get your Discharge, for anybody to come and do something to upset your case, (even the Trustee), they would have to overturn your Discharge, which is very difficult to do. About the only time that occurs is when there has been substantial fraud and concealing of assets that would have been part of the BK estate.

(4) Closing is merely an administrative act whereby the trustee and Court Clerk close your file because there is no more action that needs to take place in your case.

So, you ask, what happens between Discharge and Closing. If the trustee, after the 341 meeting, designates your case a “No Asset” case, your case will likely be Discharged and Closed on the same day, or within a very short time of each other. If your case is an “Asset” case (meaning there are non-exempt assets in the BK estate that the Trustee can use or sell to use to make some payment to creditors, the most common of which are income tax refunds), the case stays open for the trustee to administer your case. Moreover, you’ll have a good idea of what assets are exempt and which are not before discharge, thus, there are few, if any surprises that may occur between Discharge and Closing. A lot happens behind the scenes between discharge and closing. The BK Trustee is managing the BK estate…he has to get proof of claims from creditors, he may object to certain creditor claims, he may have to prioritize claims, may have to avoid preferential payments, all sorts of things. But for the most part, the Debtor is not involved. The most common thing a Debtor contributes to the time between Discharge and Closing is a copy of their Tax return, and possibly the turnover of any tax refund. Other than that, the debtor is generally not involved. Once the trustee has completed administering the non-exempt assets and so forth, the case will close.

So, in short, DO NOT WORRY, DO NOT LOSE SLEEP if your case has not closed. So long as your case is Discharged, you’re done, you have achieved your goal with Bankruptcy…go about and live your life. Again, the Discharge has legal significance, closing is only of administrative significance.