If a creditor challenges the dischargeability of one of your debts in bankruptcy, should you hire a lawyer to help you defend against the challenge? The answer depends on a number of factors, including:
There are certain debts that you cannot discharge (wipe out) in bankruptcy regardless of whether the creditor challenges it or not. (Learn more about nondischargeable debts in Chapter 7 bankruptcy.)
There are other debts (like credit card debt and medical debt, to name a few) that bankruptcy will wipe out. However, sometimes a creditor will challenge the discharge a debt that you would normally be able to eliminate in bankruptcy. In order to challenge one of these debts, the creditor must file a complaint (called an adversary proceeding) in your bankruptcy and prove to the court that your debt should not be discharged. (Learn more about nondischargeability complaints in bankruptcy.)
The following are some of the most common reasons creditors challenge the discharge of a debt:
If a creditor challenges the dischargeability of one or more of your debts, the court will often declare the debt nondischargeable unless you respond to the complaint. Because an adversary proceeding is essentially a lawsuit within your bankruptcy case, you must be familiar with federal bankruptcy laws, procedures, and discovery rules in order to defend against it. (Learn about the procedures involved in defending a nondischargeability complaint.)
If a creditor challenges the discharge of a consumer (nonbusiness) debt, and you win, the bankruptcy court can award you attorney's fees and lawsuit costs if the creditor’s complaint alleged one of the following:
However, the creditor won't have to reimburse you for attorney's fees and costs if it can prove that:
If a creditor challenges your discharge, it's often a good idea to get an attorney, but not always. Sometimes your circumstances don't justify the cost of hiring an attorney.
There is no guarantee that you'll recover your attorney's fees and costs from the creditor. If you don’t win the adversary proceeding or satisfy all other requirements, you'll be on the hook for your attorney's fees and court costs.
If the debt is small, you might not want to risk hiring an attorney and ending up with a significant amount of attorney's fees. Instead, you might be able to negotiate a compromise (such as agreeing that only a certain portion of the debt will be nondischargeable) on your own and avoid the risks involved in litigation.
On the other hand, if the debt is large and you have a good chance of winning, it will probably be worthwhile to hire an attorney to argue your case in court or negotiate a settlement on your behalf.
If you have a good chance of success in the creditor’s nondischargeability action, it will often be in your best interest to hire an attorney if:
If your case isn’t very strong, it will often be better to negotiate a quick compromise with the creditor rather than take the matter to trial. In this situation, though, you might consider hiring an attorney to help you negotiate a good settlement.
If a creditor objects to your discharge, it’s always a good idea to talk to a knowledgeable bankruptcy attorney to learn about your options. An attorney can usually tell you how strong your position is and which course of action will be in your best interest. In addition, the attorney may be able to quote you a fee and provide you with payment options that minimize your risk. (Learn more about how to find a bankruptcy attorney.)