Discharge of your debts is you ultimate goal in filing for bankruptcy. After a discharge, creditors are no longer allowed to call you, garnish your wages, sue you to collect a debt, or do anything else in order to collect the debts that were discharged.
Under Chapter 7 bankruptcy, otherwise known as “liquidation bankruptcy,” a debtor is able to discharge all of their debt that is legally capable of being discharged, such that the debtor is no longer liable to repay the debts.
Debts that are legally capable of being discharged are referred to as qualifying debt and include credit card balances, medical bills, and personal loans. However, even if a debt qualifies for discharge, there are certain cases where creditors or the bankruptcy trustee may object to the discharge of a certain debt by filing an adversary proceeding or motion to make the debts or the entire bankruptcy case nondischargeable.
What Debts are Not Qualified to be Discharged in Bankruptcy?
Not all of your debts are qualified to be discharged in bankruptcy. Common examples of debt that are nondischargeable include student loans, child support, alimony, HOA fees, and certain taxes such as regular income tax debt.
Creditors in this case do not need to file an objection with the court, because the law clearly defines these debts as nondischargeable. Sometimes however, debts that are dischargeable such as credit card debt, may be deemed nondischargeable if certain conditions are met and a creditor files an adversary proceeding.
When May a Creditor File an Objection to Discharge?
Creditors, Chapter 7 bankruptcy trustees, and United States trustees may object to your debt discharges. Typically, the most common objectors are creditors, thus, the most common creditor objections to discharge will be discussed in length below. Creditors will generally ask to prevent the discharge of the specific debt that is owed to them.
Thus, generally, they will likely allege that you made false statements to them in order to obtain a loan from them. Chapter 7 bankruptcy trustees are in charge of establishing and maintaining the order that the debts are discharged in the bankruptcy proceedings, and their duty is to make sure all creditors are treated equally.
So, a Chapter 7 bankruptcy trustee will likely object if they uncover evidence of some unfairness to the creditors such as fraudulently transferring assets. United States trustees of bankruptcy may also object to a debt discharge. Their claims usually rely on a bankruptcy code violation. An example of a bankruptcy code violation is filing two bankruptcies within a certain period of time.
In general, there are two main types of objections that a creditor may file. The creditor may either object to the discharge of one specific debt or all of the discharges. Complaints made by creditors to object to the discharge of debts will likely allege that you:
- Either attempted to defraud the creditor;
- Hid property from the bankruptcy court;
- Destroyed records;
- Committed perjury by providing false information of your bankruptcy petition;
- Lied under oath; or
- Failing to obey an order of the bankruptcy court.
Committing bankruptcy fraud is a very serious offense and can result in the loss of the discharge of all your debts, as well as more severe punishments like imprisonment.
What are Some Common Creditor Objections to Bankruptcy Discharge?
The most common creditor objections to discharge include the following:
- Purchasing a High Amount of Luxury Items on Credit before Filing for Bankruptcy: If you purchase a high amount of luxury items such as jewelry, expensive electronics, vacations, or other items you do not need to support yourself totaling over $675 (as of April 2016) during the 90 day period proceeding when you file for bankruptcy, then that debt is presumed to be nondischargeable and you must prove that the purchases were necessary, not a luxury good.
- Taking Out Cash Advances Prior to Filing for Bankruptcy: Similarly to purchasing a high amount of luxury items prior to filing for bankruptcy, if you take out cash advances above the amount $950 (as of April 2016) in the 70 days prior to filing bankruptcy, then those debts are also presumed to be nondischargeable.
- Fraud through a Loan Application: If you lie on a loan application or misrepresented your assets in order to obtain a loan, then that creditor will have the grounds to object to the discharge of that debt. It is important to remember that fraudulent debts are nondischargeable in bankruptcy.
Do I Need an Attorney for Bankruptcy Discharges?
If you find that a portion of your debt falls into any of the categories that a creditor may object to the discharge of or if a creditor has filed a motion or adversary proceeding against you, then you may want to consult with an experience bankruptcy attorney.
A well qualified bankruptcy attorney can assist you with proving that your debts are debts and should not be discharged, as well as informing you of you likelihood of success winning those arguments with creditors. As can be seen bankruptcy is a very complex process, if your debts are substantial it may make sense to hire an experienced bankruptcy attorney to represent you.