Creditors have the right, but not always the intent, to challenge bankrupcty discharge. That does not mean a creditor who is owed money on a particular bill will not show up to a 341 hearing, a court-order meeting of the debtor with a bankruptcy trustee and any creditors who choose to attend.
"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. Or, your bankruptcy can be challenged if you misrepresented your financial affairs in a personal financial statement," writes Georgia attorney Jonathan Ginsberg on his website, AtlantaBankruptcyAttorney.com.
Generally, an attorney or a paralegal representing a creditor who attends a 341 meeting will ask if the debtor has assets not listed in their bankruptcy petition. They may also ask to see proof of insurance on a car or home, usually the largest property owned by Chapter 7 filers.
If a creditor does challenge the discharge of a debt, Ginsberg states that the 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.
Instead of representatives of a large credit card company or medical facility, legal experts say those who are most likely to challenge a bankruptcy discharge are individuals who may have lent money to the debtor or a local business creditor.
In some cases, a creditor may take the additional step of filing a lawsuit within the bankruptcy to object to the discharge of a debt. That is called an adversary proceeding, and often is based on a claim of fraudulent behavior by the debtor, such as lying on a credit card application.
New York attorney Craig Robins writes on LongIslandBankruptcyBlog.com that creditors aren't likely to take their complaint this far in a Chapter 7 case because the burden of proof falls on them, they have to pay court and attorney fees to challenge the bankruptcy and there is a considerable amount of legal work involved in such complaints.
In New York, Robins has found, "The court expects the lawyers to do the same amount of legal work whether the case involves a $5,000 consumer credit card debt or a $1,000,000 Chapter 11 [business bankruptcy] turnover action."