What happens if your bankruptcy is denied?

While interest rates and inflation have cooled compared to recent highs, the financial instability caused by higher consumer goods prices and expensive borrowing options continues to affect millions of Americans. As a result, over half a million Americans filed for bankruptcy last year alone, an uptick of over 16% compared to the year prior. That year-over-year uptick in bankruptcy filings highlights the growing reliance on bankruptcy for those who are no longer able to manage their expensive debt. 

But while many people successfully navigate the bankruptcy filing process, not every case reaches a favorable conclusion. Having your bankruptcy denied can have significant and far-reaching implications, though. It can also leave you in financial limbo, unsure of how to proceed or what options remain available. This situation can be particularly challenging if your creditors resume their aggressive collection efforts, including wage garnishments and lawsuits. 

For those already overwhelmed by debt, a bankruptcy denial can feel like an insurmountable setback, but it doesn't have to be. Whether due to procedural errors, eligibility issues or something else entirely, knowing why a bankruptcy case was rejected — and what happens next — can help you find the right path forward. 

Speak to a debt relief expert about your options today.

What happens if your bankruptcy is denied?

When a bankruptcy filing is denied, it means the court has rejected your petition to discharge debts or reorganize them under bankruptcy protection. The reasons for denial vary but can include:

• Fraudulent activity: Providing false information or hiding assets during the filing process can lead to rejection.
• Failure to meet eligibility requirements: Each bankruptcy chapter has specific criteria. For example, Chapter 7 requires a means test to assess your income level, while Chapter 13 demands a feasible repayment plan.
• Noncompliance with court requirements: Missing deadlines, failing to complete required credit counseling or not submitting necessary documents can also lead to denial.

If your bankruptcy case is denied, the court may:

• Dismiss the case: A dismissal means the process ends without granting you any relief. You'll still owe all your debts and will need to explore other options.
• Bar you from refiling immediately: Depending on the reasons for denial, you may be restricted from filing another bankruptcy case for a certain period.
• Open the door to creditor action: Without the protection of an active bankruptcy case, creditors can resume collection efforts, including wage garnishments, lawsuits or repossessions.

Find out how a debt relief program could benefit you now.

How to get rid of debt without filing for bankruptcy

If you've filed for bankruptcy but learn that it is not an option, there are alternative strategies to manage your debt effectively, including:

Debt settlement (or debt forgiveness)

Working directly with creditors or through a debt relief company on a settlement can reduce what you owe by 30% to 50% on average. This process involves negotiating lump-sum payments for less than the full balance. While effective, be aware that any forgiven debt may be taxable as income and your credit score will typically take a significant (but temporary) hit.

Debt management 

Credit counseling agencies can help you establish a debt management plan that consolidates your payments with potentially lower interest rates and fees. Debt management plan participants typically become debt-free in a matter of three to five years, typically while maintaining their credit score.

Debt consolidation 

With debt consolidation, you can combine multiple debts into a single payment, often at a lower interest rate. This can help you save significantly on interest charges, but you'll typically need a decent credit score (usually 650+) to qualify for favorable terms. Debt consolidation programs, which are offered by debt relief companies, can also be a smart route to consider.

Asset sales or liquidation 

Selling non-essential assets like a second car, jewelry or investments can generate funds to pay down debt while allowing you to maintain control over the process.

The bottom line

While bankruptcy denial can feel like hitting rock bottom, it doesn't have to be. After all, bankruptcy isn't the only path to financial recovery when you're overwhelmed by expensive debt. Many people find that alternative debt relief methods, particularly when combined with better financial habits and budgeting, can provide the fresh start they were seeking through bankruptcy, often with less long-term impact on their credit profile. So if your bankruptcy filing is denied, it can benefit you significantly to do your homework, explore the alternatives and determine which path makes the most sense for your circumstances.