At the close of a bankruptcy filing, all unsecured and non-exempt debts that were not satisfied by the bankruptcy process will be discharged. That means the debtor no longer has a legal obligation to pay the debts. The bankruptcy is over, finalized, and protection for the debtor is guaranteed by the terms of the bankruptcy discharge.
Creditors may, under some conditions, formally object to the possibility of a discharge of their debt. Most debtors filing for bankruptcy protection have very little assets or income. That is why they are bankrupt in the first place. Most Chapter 7 bankruptcy cases are “no-asset” cases, meaning the filer does not have any non-exempt property for the trustee to sell. So, why would a creditor object to a debt being discharged if the debtor has no assets and very little income?
There are a variety of reasons a creditor would object to discharge. Most of the time, an objection to discharge is usually related to the amount of money being discharged. Additionally, a creditor may object if they feel like you took advantage of your financial relationship. The more personal the relationship, it seems, the more chance a creditor might challenge the discharge.
If a creditor suspects you have run up a bill and filed bankruptcy to defraud them, they might be more likely to challenge a discharge. Congress passed the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act in response to those filers who appeared to be abusing the system. This allowed bankruptcy courts to look back over a time to see how filers had spent their money before they filed. A creditor suspecting they were taken advantage of by a filer who knew they were going to file bankruptcy before they ran up a credit bill can challenge a discharge based on this abuse.
Also, a creditor might challenge a discharge if they suspect fraud was committed to obtain the credit. Filing bankruptcy may allow an honest debtor to make a fresh start. The key word here is “honest.” Bankruptcy fraud, however, is a crime.
Because there are a variety of reasons a creditor might object to a discharge you may want to consult with a bankruptcy lawyer before you file for bankruptcy. He or she can help you understand how bankruptcy laws might apply in your particular situation.
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