Why a Creditor May File an Objection to Discharge in Bankruptcy

In a case of bankruptcy, particularly those under chapter 7, certain debts may be discharged at the conclusion of the bankruptcy proceedings.  What this essentially means is that the debtor is no longer obligated to pay the creditor for the debt and the creditor can no longer seek relief from the court or from the debtor (by phone calls, letters or threat of suit).

CREDITOR'S RIGHT TO "OBJECTION TO DISCHARGE"

Because this situation can be particularly damaging to creditors, they are allowed to file an “objection to discharge.”  Generally most objections are based on the pre-bankruptcy financial status and actions of the debtor. This begins an adversary proceeding in which the creditor asks the court to not allow a particular debt to be discharged and they present evidence to support their case.

To do this, the creditor must file his objection with the bankruptcy court prior to the deadline set out in the notice of bankruptcy.

GROUNDS UPON WHICH TO OBJECT TO DISCHARGE IN BANKRUPTCY

The trustee or creditor may file an Objection to Discharge for any of the following reasons:

1. If the bankrupt debtor has committed any offenses created by the bankruptcy law.  According to the law (Sec 14b) this includes offenses “punishable by imprisonment as herein provided.”

2. If the bankrupt debtor, in an attempt to conceal his actual financial condition, conceals, destroys or fails to keep books of record of his finances.

3. If the bankrupt debtor used a false written statement to obtain credit whereby he obtained money or property. Any creditor may use this objection even if he was not personally misled by it.

4. If the bankrupt debtor, four months prior to the bankruptcy made fraudulent conveyance of nay property which might be used to repay a creditor.  The Act states that the bankrupt debtor will be denied his discharge if he has "at any time subsequent to the first day of the four months immediately preceding the filing of the petition transferred, removed, destroyed, or concealed, or permitted to be removed, destroyed or concealed any of his property, with intent to hinder or delay or defraud his creditors." An example of fraudulent conveyance would be transferring a bank account or property into the name of a relative, making it clear to the relative that you have no intention of relinquishing ownership, but merely want to protect it from the bankruptcy court who will liquidate it in order to pay your creditors.

5. If the bankrupt debtor has been involved in a voluntary bankruptcy case where discharge has been granted within six years. This is in order to prevent debtors from continually bringing petitions before the bankruptcy court. Though this is grounds for objecting to a discharge in voluntary cases, it is not grounds in involuntary cases.

6. If the bankrupt debtor, “in the course of the proceedings in bankruptcy refused to obey any lawful order of or to answer any material question approved by the court.”

CONSEQUENCES OF THE COURT'S DECISION 

If the creditor is successful in any of his attempts to” object to discharge” the court will declare the debt non-dischargeable.  This allows the creditor to pursue, according to state law, all collection remedies available in order to seek relief from the debtor. On the other hand, if the creditor is unsuccessful and the debt is discharged, the creditor has no further recourse for relief for that debt, and can no longer pursue relief from the debtor.