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 you, the debtor, should not be relieved of the obligation to pay a debt, or all debts. It means that they want to prevent you from getting the thing that is the sole purpose in filing bankruptcy: a discharge of liability.
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 you 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 you were not truthful and you lied with the intent to have the creditor rely on your lie. For example, you put on a credit application that you make $20,000 per month when you only make $20,000 per year.
In the case of an objection to your discharge in general, it means that the trustee (it’s usually the trustee who objects to discharge in general) believes you aren’t cooperating in administering your estate. For example you have hidden assets or destroyed documents that would give a full picture of your financial situation.
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 you paid your attorney to do the bankruptcy will generally not cover defending an adversary proceeding. Still, you are going to have to defend yourself. Otherwise your discharge will likely be denied and your bankruptcy will have been in vain. And while you can represent yourself, the law surrounding discharge of debts is complicated. You really need to get competent legal counsel.
If you need help with any part of your bankruptcy, please contact us.