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 and may do so if they believe they have grounds to succeed.
Learn why the trustee or a creditor might object to your discharge and what that means for you.
A discharge is your ultimate goal when you file for bankruptcy. Getting a discharge means that your personal liability on the debt is wiped out and the creditor can no longer do anything to collect the debt from you. After a discharge creditors are not allowed to call you, sue you, garnish your wages, or continue any other collection efforts on the discharged debt.
Not all debts are discharged in bankruptcy. The most common examples of nondischargeable debts are certain taxes, domestic support obligations such as alimony and child support, and student loans. These creditors usually do not file objections with the court because the law makes it clear that you cannot discharge these debts.
However, debts that are normally dischargeable (such as credit cards or personal loans) can sometimes be deemed nondischargeable if certain conditions are met. In that situation, if a creditor feels its debt should not get discharged, it can file an objection to your discharge.
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. Creditor objections are normally specific to a debt based on when or how you took out that debt.
Below are some of the most common creditor objections to discharge.
If you charged more than $675 (as of April 2016) 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. But keep in mind that if the debt was not for luxury items (meaning it was necessary for your support) then the creditor is not likely to file an objection.
Similarly, the law says that if you took a cash advance of $950 (as of April 2016) or more in aggregate from a creditor in the 70 days before filing bankruptcy, it is presumed to be nondischargeable as well.
Money obtained from a creditor by fraud, misrepresentation, or false pretenses is also nondischargeable. This usually includes making false representations to a creditor to secure the money or taking it without ever intending to pay it back. However, unless the creditor has already sued you before bankruptcy and obtained a judgment based on fraud, it must prove the fraud in bankruptcy court which is very hard to do.
A creditor must file an adversary proceeding (essentially a lawsuit in your bankruptcy) in order to determine that the debt is nondischargeable. After the complaint is filed, you will have an opportunity to respond to it and both sides will have a chance to present evidence as to why the debt should be discharged or not. However, depending on the amount of the debt and the cost of litigation, most creditors will usually settle if you agree to pay back a portion of the debt.
The court may deny you a bankruptcy discharge entirely if you committed bankruptcy fraud or did not comply with applicable bankruptcy laws. This would mean that you are still responsible for all your debts. However, if a creditor’s objection was successful in regards to a specific debt, then you will have to pay back that debt but you will still receive a discharge for your other debts.