Can Your Bankruptcy Discharge Be Denied?

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For most people who file bankruptcy, discharge is the goal. In exchange for that discharge, the bankruptcy system requires that a Chapter 7 or Chapter 13 debtor - the person who files a bankruptcy case - give up non-essential assets, which will be distributed to creditors to satisfy debts. Imagine filing for bankruptcy, giving up assets and then losing your discharge. Can you think of a more unpleasant financial circumstance?

 

Why Would You Be Denied a Discharge?

Bankruptcy cases demand honesty and cooperation. If you fail to be honest in your paperwork or in your dealings with the court, or you fail to cooperate with the court or your trustee, your case will be dismissed or you will be denied a discharge, but still have to abide by other bankruptcy requirements. Here are some of the reasons why your discharge could be denied:

  • You hid property
  • You destroyed your financial books or records
  • You made false statements, orally or in writing, about your assets, earnings, and debts
  • You failed to explain or account for loss of property or money
  • You failed to complete a required credit counseling or financial management course
  • You violated a court order
  • You failed to disclose a prior bankruptcy case
  • You received Chapter 7 bankruptcy discharge within the past 8 years or a Chapter 13 discharge within the past 6 years

Read more on the subject: How to Lose Your Bankruptcy Discharge

The Complaint

The first step in seeking to deny the discharge of a debtor is to file a complaint. Usually, this means that the bankruptcy trustee or a creditor will file a document with the court setting forth why the debtor should not receive the discharge. This complaint is based on the federal bankruptcy law, which sets forth the grounds for denial of discharge.

As you see above, there are several reasons for the denial of discharge, the major reasons for denial of discharge include lying on the bankruptcy petition and failing to keep financial records.

Service of the Complaint

Under the Bankruptcy Code, unlike most lawsuits, a complaint to deny your discharge can be served on you by mail at the address on your bankruptcy petition. This is different from other lawsuits where you must be personally served (just like in the movies where a process server says "you're served!"). After you are served with the complaint, you have 30 days to file your response.

Response to the Complaint

Your response to the complaint will generally come in one of two forms, an "answer" or a "motion to dismiss." However, these types can be combined into one document. An answer replies to the factual statements in the complaint and must admit or deny each. A motion to dismiss is a legal maneuver that is more complex and requests that the court dismiss the complaint because it is legally deficient in some way. Many bankruptcy courts keep form complaint answers for debtors that do not have lawyers. If you do not answer the complaint or file some sort of response, a default will be taken, which means that the other party wins automatically.

Going to Court and Trial

Although the process varies from court to court, generally the bankruptcy court will require you to appear in court at least once prior to trial. You will have a moment to speak with the judge about the case. Generally, these appearances only relate to the scheduling of future events, such as a trial. At trial, the person that filed the complaint will have to prove that it is more likely than not that you lied on your bankruptcy petition, or committed some other act or omission that should result in the denial of your discharge.

Judgment

At the end of ​the trial, the bankruptcy judge will rule for one side or the other. If the bankruptcy judge rules against you, he will enter something called a judgment denying your discharge. This means that you will not receive the benefit of having filed the bankruptcy case.

However, you can appeal the judgment. Not only are you denied a discharge, but there is a possibility of a criminal referral. If the judge believes it is warranted, he or she will refer your case to the Department of Justice for investigation. This is because the same offenses that can lead to the denial of discharge are federal crimes!

Get a Lawyer!

If you are sued and the lawsuit is seeking to deny your bankruptcy discharge, you need to hire a lawyer and fast! This does not mean any lawyer. You need to hire a very specific subtype of lawyer that specializes in bankruptcy litigation. If you do not hire a lawyer, you will be at an extreme disadvantage.

For more information, read Discharging Debts: Challenging Discharge and Dischargeability.

LEGAL DISCLAIMER

This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this article does not create an attorney-client relationship between the author of this article and the user or browser.