Challenges to debt discharge usually absent from personal bankruptcy cases
The bankruptcy process allows creditors to challenge whether debts owed to them should be discharged in court. It's a right exercised in many large business bankruptcies, but when it comes to Chapters 7 and 13 cases, it doesn't happen often.
When it does occur in personal bankruptcy cases, legal experts say debtors aren't likely to see representatives of a credit card company or medical facility turn up at the 341 meeting of creditors before a court trustee. Instead, it may be associates and friends who have loaned money to the debtors or the owner of a local business who disputes the elimination of a debt during the creditors' hearing.
New York attorney Craig Robins writes on LongIslandBankruptcyBlog.com that most creditors aren't likely to take their complaint this far in a Chapter 7 case because the burden of proof falls on them. They also have to pay court and attorney fees to challenge the bankruptcy and there is a considerable amount of legal work involved in such complaints.
Creditor objections are usually based on whether the debtor failed to produce financial records, couldn't explain a loss of assets or made false statements in the petition. They may claim that the debtor didn't obey a court order regarding the bankruptcy or fraudulently transferred, concealed or destroyed property that should have been included in the individual's estate.
Another common complaint is that a debtor has used credit recently knowing that filing bankruptcy was likely. "A creditor might object to your Chapter 7 case if you ran up a lot of credit card bills in the six months to a year prior to filing," writes Georgia attorney Jonathan Ginsberg on his website, AtlantaBankruptcyAttorney.com.
If a creditor fights the discharge of a Chapter 7 debt, Ginsberg notes one recourse is to negotiate a partial payment plan for that particular debt or to convert the case to a Chapter 13 bankruptcy, which requires a court-ordered repayment plan over several years.
In some cases, a challenge may result in a lawsuit filed within the bankruptcy to dispute the discharge. This is called an adversary proceeding, and often is based on a claim of fraudulent behavior by the debtor.
On his website, Detroit attorney Walter Metzen states that the most likely scenario for a creditor to object to a discharge revolves around suspected fraud, including embezzlement of assets or malicious injury to property involved in the debt.
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