Objections to the Discharge of Debts in Bankruptcy

The creditors objected to the discharge of debts in Bankruptcy

The court has systems (like guidelines on which debts are dischargeable and non-dischargeable) in place to settle each case at hand on the first hearing. However some creditors (usually the unsecured ones) sometimes still challenge some of the dischargeable debts and so it necessitates another hearing.

How is it possible to object to an already discharged debt?

It is not a new to the court and the creditors that some consumers would attempt to defraud or find a way around the law to minimize their loss. It is hard to tell whether or not the consumer just committed an honest mistake (in the name of self-preservation) or if the creditors are just being overly vigilant (in their collection efforts).


What happens when the creditors disputes a discharge of debts?

There is going to be an adversarial proceeding, (which is not a major hearing), it is just a discussion between the creditors and the consumer (with presentation of evidences), even as the judge and the trustee are both present.

What do creditors usually object to?

Debts from fraud and false statements:

70/90 day rules

1. If the consumer borrowed more than $550 from a single creditor just so he/she can purchase a "luxury" item, and then file bankruptcy after 90 days, the creditors would think that the purchase was meant to be included in the bankruptcy case that is going to be filed later on.

2. If the consumer obtained a cash advance worth $825 all in all, to a single creditor (in an open-ended plan) within 70 days before filing bankruptcy. Open-ended means that there is no deadline for repayment, the consumer pays a minimum amount each month.

Other examples:

• The consumer wrote a vendor a check that would later on bounce (with insufficient funds)
• The consumer borrowed an expensive item and used it as collateral to secure a loan.
• The consumer omits debts and overstated his/her income

Who has the burden of proof?

The creditors have the responsibility to prove to the court that the debt/s should not be rewarded a discharge. They would first have to file an Objection to Discharge Debt.

Debts from willful and malicious acts

This usually pertains to consumers (debtors with a criminal record) who have caused people or other people’s properties harm, like, assault, rape, murder, arson…even stalking or bullying to the point that it caused the victim extreme anxiety and shock, libel, slander, or even simple manipulative actions that cause somebody so much discomfort. A bankruptcy court would not discharge debts that arise from these criminal acts.

Debts from embezzlement

When a consumer runs away or claims ownership of something that was just entrusted to him/her, he/she is said to have committed embezzlement. This usually happens to people with close relationships like business partners, attorney and client, husband and wife, etc.

Debts from unlisted creditors

This only works for debts that were a result of fraudulent activities. If the court was not able to serve the creditor a notice regarding a fraudulent hearing, because the consumer forgot to list him/her down, and it deprived the creditor the opportunity to defend his/her interest or by filing a complaint, then the debt might survive bankruptcy.
Although whether or not the creditor was listed down, the bankruptcy court would expect the creditors to protect his/her interest by knowing the activities of his/her own case.

What if an unknown creditor pops up after the case was closed?

The consumer can always ask the court to reopen the case, and add that creditors name to the list, afterwards the consumer can ask for the discharge to be amended. Many of such cases usually get a successful discharge.

What if the creditor continues to harass the consumer?

The consumer may bring the case to the bankruptcy court and file a charge for contempt.

Can objections be avoided?

Disputes over debt cannot be avoided but it can be minimized. If the consumer knows that a declaration of bankruptcy is looming in the near future, he/she should remember the following:

1.) Try to wait a minimum of 3 months from the date of the credit card charge to file bankruptcy. The idea is to get outside of the 90 day rule. If the charge was really large, the wait period should be extended to 6 months.
2.) While waiting, the consumer should try to make at least the minimum payments on the card that was used to on that card with a large charge.
3.) Stop charging on that credit card. Make sure that that large purchase is the last one.

Other resources:

Objections to exemptions claimed in bankruptcy
Dismissing your case in bankruptcy