The last thing a debtor wants to hear is that someone, either a creditor or the bankruptcy trustee, has objected to discharge. What does that mean, why did they object and, most importantly, what should you do?
What does it mean?
Under the Bankruptcy Code a creditor or other party in interest can object to the discharge of a specific debt or to discharge in general. What that means is the creditor is saying that the debtor should not be relieved of the obligation to pay a debt, or all debts. It means that they want to prevent the debtor from getting the thing that is the sole purpose in filing bankruptcy: a discharge of liability. Debts that are included in a bankruptcy but are not discharged in that bankruptcy cannot be discharged in a later bankruptcy, so an objection to discharge is a big deal. Objections to discharge of individual debts are not common. Most cases go through without any objections whatsoever. But, when they happen, the consequences can be devastating.
Why did they object?
When a creditor objects to discharge of a specific debt, it means the creditor believes he has grounds under the Bankruptcy Code to convince the court that a particular debt shouldn’t be discharged. Those grounds are very narrow. A creditor can’t just say, “well, I don’t think the debtor should get a discharge.” The Bankruptcy Code gives several grounds for denying discharge of a debt, but the most common are (1) the debt was incurred fraudulently; (2) the debt was caused by driving under the influence of drugs or alcohol; or (3) the debt results from the intentional destruction of property of the creditor. Number 1 is by far the most common. It means that in incurring a debt, the debtor wasn’t truthful and acted with the intent to have the creditor rely on the lie. For example, the debtor put on a credit application that she makes $20,000 per month when she only makes $20,000 per year. If an objection to discharge of a particular debt is upheld, the debtor still receives a discharge of all other debts.
In the case of an objection to the discharge in general, it means that the trustee (it’s usually the trustee who objects to discharge in general) believes the debtor isn’t cooperating in administering the estate. For example, the debtor has hidden assets or destroyed documents that would give a full picture of her financial situation. Objections to discharge in general are even more rare than objections to discharge of a particular debt. One of the most common objections comes from the debtor’s failure to turn over any tax refund that she received to the trustee.
What should you do?
A non-dischargeability action is brought as an adversary proceeding, which is a lawsuit within the bankruptcy. It is started by filing a complaint that sets out the alleged grounds for denying discharge. It then proceeds through the various stages of litigation, eventually ending in a trial if it can’t be settled. This can be time-consuming and quite expensive. The fee a debtor paid to her attorney to do the bankruptcy will generally not cover defending an adversary proceeding. Still, the debtor must defend the action. Otherwise the discharge will likely be denied and the bankruptcy will have been in vain. Even if the objection is just as to a single debt, very often that debt is one of the primary reasons the debtor filed in the first place. And while a person can represent herself, the law surrounding discharge of debts is complicated. You really need to get competent legal counsel.
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