Usually, when you file for Chapter 7 bankruptcy and make it through your meeting of creditors, you have nothing but smooth sailing ahead. Not always, though. Interested parties such as creditors or the trustee still have time to object to your bankruptcy discharge after your initial hearing.
Learn why the trustee or a creditor might object to your discharge and what that means for you.
Receiving a bankruptcy discharge toward the end of your case is your ultimate goal when you file for bankruptcy. Getting a discharge means that your personal liability on qualifying debt is wiped out and the creditor can no longer do anything to collect the debt from you. Creditors aren't allowed to call you, sue you, garnish your wages, or continue any other collection efforts on the discharged debt.
Not all debts get wiped out in bankruptcy. Common types of dischargeable debts include credit card balances, medical bills, utility bills, and personal loans.
Examples of nondischargeable debts include many taxes, domestic support obligations, and student loans. These creditors usually won't object to your discharge because the law makes it clear that you'll have to repay these obligations.
However, debts normally dischargeable can sometimes be deemed nondischargeable if certain conditions are met. In most cases, the creditor will show that the debtor engaged in some type of fraud.
Learn more about debts discharged in Chapter 13 but not Chapter 7.
The bankruptcy trustee, the U.S. Trustee, or any of your creditors can file an objection to discharge. They have 60 days from your meeting of creditors to do so.
The trustees will usually object if you lied in your bankruptcy papers or otherwise failed to qualify for a discharge under the bankruptcy code. By contrast, most creditors don't want to waste litigation funds and will only ask the court to determine that its obligation is nondischargeable. Such creditor objections are normally specific to a debt based on when or how you took out that particular debt.
Below are some of the most common creditor objections to discharge.
If you charged more than $725 in aggregate on a single credit card for luxury goods or services during the 90-day period preceding your bankruptcy, then that debt is presumed to be nondischargeable (as of April 1, 2019; $675 for cases filed between April 1, 2016, and March 31, 2019). (11 U.S.C. § 523(a)(2)(C)(i)(l).)
If the debt was not for a luxury item (meaning it was necessary for your support, such as food, rent, or needed clothing) then the creditor is not likely to file an objection. Necessary items purchased on credit aren't presumptively fraudulent.
Similarly, the law says that if you took a cash advance of $1,000 or more in aggregate from a creditor in the 70 days before filing bankruptcy, it is presumed to be nondischargeable (as of April 1, 2019; $950 for cases filed between April 1, 2016, and March 31, 2019). (11 U.S.C. § 523(a)(2)(C)(i)(l).)
Money obtained from a creditor by fraud, misrepresentation, or false pretenses is also nondischargeable. This type of fraud often occurs as a result of making false representations to a creditor to secure the money—for instance, inflating income on a credit application—or taking funds without intending to pay it back.
Learn more in Bad Faith Filing in Bankruptcy Cases.
Unless the creditor already has a fraud judgment against you, a creditor must file an adversary proceeding, which is essentially a lawsuit in your bankruptcy, asking the court to determine that the debt is nondischargeable. After the complaint is filed, you will have an opportunity to respond to it. The case will go through the discovery process and both sides will have a chance to present evidence and argue their case.
Depending on the amount of the debt and the cost of litigation, most creditors settle the case by agreeing to take a portion of the debt.
The court could deny you a bankruptcy discharge entirely if you committed bankruptcy fraud or didn't comply with applicable bankruptcy laws, and you'd remain responsible for all your debts. You could also be subject to fines and incarceration, depending on the severity of the case.
However, if a creditor's objection was successful regarding a specific debt, then you'll have to pay back that debt but you'll still receive a discharge for your other debts.