In most Chapter 7 bankruptcy cases, most or all of the debtors’ debts are discharged (wiped out) at the end of the bankruptcy. But a creditor or the bankruptcy trustee can challenge the dischargeability of a particular debt in your bankruptcy case or challenge your entire bankruptcy discharge (meaning all of your debts). These challenges are called objections to discharge.
Read on to learn what an objection to discharge is, what the legal consequences are if the judge grants the objection, typical grounds for objection, and more.
What Is an Objection to the Bankruptcy Discharge?
When you receive a bankruptcy discharge, you are no longer required to pay back the discharged debts after your bankruptcy case is finished. (Not all debts can be discharged in bankruptcy. To learn more, see Nondischargeable Debts in Chapter 7 Bankruptcy.) This means that creditors cannot legally collect those debts from you in the future.
If a party in your bankruptcy disputes that a debt can be discharged, then that party must file an objection with the bankruptcy court and request that the debt not be discharged. The deadline for any objections to the discharge of one or all of your debts is 60 days after the meeting of your creditors.
Types of Objections to Discharge
There are two types of objections to discharge in a Chapter 7 bankruptcy.
Objection to Discharge of a Particular Debt
A creditor can object to the discharge of its particular debt. This type of objection does not affect any of the other debts in your case. If the creditor wins, the debt is not discharged and you will be required to repay that debt. This is true even if the bankruptcy court issues the order of discharge for all of your other debts.
Objection to the Discharge of All of Your Debts
A creditor or the trustee can object to the discharge of all your debts. Usually, this objection is based on fraud committed by the debtor in connection with the bankruptcy case. Examples of bankruptcy fraud include:
- perjury by providing false information on your bankruptcy petition and schedules
- transferring the title or property to another person to avoid including it in the bankruptcy, or
- lying to the bankruptcy trustee or judge during hearings.
If a debtor is convicted of bankruptcy fraud, not only will the court deny the discharge, but the debtor may also be sentenced to prison.
Creditors, the Chapter 13 trustee, or the U.S. Trustee or Bankruptcy Administrator may also object to discharge of all debts if the debtor:
- fails to keep and produce adequate financial records
- does not disclose assets (hiding assets)
- destroys assets, or
- fails to obey a lawful order of the bankruptcy court.
The penalty to you for losing this objection is very severe. If the creditor wins, then your bankruptcy case will be dismissed and you will have to repay all of your debts. Even worse, you will not be able to include these debts in any future bankruptcy cases.
Grounds for Objections to Discharge
The bankruptcy code sets outs certain grounds and circumstances in which your debts will not be discharged. The following are the most common types of grounds for objections.
- You received a discharge in a Chapter 7 bankruptcy at any time during the prior eight years. (To learn more, see Multiple Bankruptcy Filings.)
- The debt is a priority debt and cannot be discharged. Alimony, back child support, court costs, fines owed to government institutions, and restitution can never be discharged. (To learn more, see Nondischargeable Debts in Chapter 7 Bankruptcy.)
- Federal and state income taxes due for the past three years as well as for taxes due for years in which you did not file your tax return on time. However, income taxes can be complicated because there are many rules which allow you to reclassify some of your taxes from priority to unsecured. This change is important because if the taxes are reclassified as unsecured, then you will not have to repay that portion. Be sure to consult with an attorney. For an overview, see Tax Debts in Chapter 7 Bankruptcy.
- Intentional filing of a tax return with false information.
- Obtaining a debt or loan by intentionally listing false information on the loan application or financial statement.
- All charges on a credit card over $650 made within 90 days of filing of your bankruptcy are not discharged. Cash advances taken on your credit cards of over $925 made within 70 days of filing of your case are also not discharged. (To learn more, see Recent Purchases for Luxury Items and Cash Advances.)
- The costs and damages caused by your intentional and spiteful conduct are not discharged. A common example of this damage is for repayment of repairs that must be made to apartments or other rental properties after people move out.
- Any damages or deaths caused by you while operating a vehicle while you were under the influence.
Who Can Object to Your Discharge?
There are several parties that can object to the discharge of your debts.
Creditors. Most objections to discharge are brought by creditors. Generally a creditor will file an objection to the discharge of its own debt. Creditors assert many reasons for your debt to not be discharged. The most serious reason is that you made false statements or used misleading information in filling out a loan application or financial statement.
Chapter 7 bankruptcy trustee. The Chapter 7 trustee's job is to be sure that all assets are collected and that all creditors are treated equally in your bankruptcy case. The trustee can object to the discharge of a particular debt. The trustee can also object to the discharge of all your debts; often the trustee does this on the grounds of bankruptcy fraud. Bankruptcy fraud involves your hiding assets, transferring assets to another person so that the assets are not in your name at filing, or destroying assets. If the Chapter 7 trustee proves that you have committed bankruptcy fraud, the court will deny your discharge, and you may even be subject to prison time.
U.S. Trustee. The U.S. Trustee or Bankruptcy Administrator can object to the discharge of all of your debts. The Trustee or Administrator generally makes this objection for a bankruptcy code violation, such as filing a second Chapter 7 bankruptcy within eight years of a previous Chapter 7 case.
Procedures for Objections to Discharge
In order to object to the discharge of one or all of your debts, the creditor or trustee must file a written objection with the bankruptcy court. The objection must set out the specific reasons or circumstances which the party believes make your debt not dischargeable. The filed objection is an "adversary proceeding," which is a fancy legal phrase for a lawsuit in a bankruptcy case. (To learn more, see our Adversary Proceedings topic area.)
The bankruptcy court will schedule a trial. If, after the trial, the judge rules against the creditor's objection, then your debt will be discharged and you will not have to repay it. If the judge approves the party's objection, then your debt will not be discharged and you will be required to repay the debt. Of course, like any lawsuit, you can settle the adversary proceeding before trial.