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Bankruptcy is the law’s way of allowing a person who has fallen behind on their debts to get  a fresh start. In a Chapter 7 bankruptcy, the debtor’s assets (except for exempt property) are gathered together into a bankruptcy estate and sold off. The proceeds from the sale are then divided among the person’s creditors, and after the proceeds are distributed the person’s remaining eligible debts are discharged, or no longer owed to the creditor.

In practice, bankruptcy is a complicated process. In order to accurately evaluate a debtor’s finances, the filing party is required to create a schedule of their assets, detailing all of their property and sources of income. This is typically accomplished with the assistance of an experienced attorney who can determine which assets are exempt from the bankruptcy process and which will need to be included in the filing.

The schedules are designed to ensure that the debtor keeps only truly exempt property and that all of the debtor’s other property goes to the creditors. The court makes these schedules available to a court-appointed trustee and to the creditors. If the debtor does not file accurate schedules there can be serious consequences. One such consequence occurs when a creditor files an objection.

Ordinarily, a bankruptcy results in the discharge of all eligible debt. However, the Bankruptcy Code allows creditors in a Chapter 7 bankruptcy the option to object to the discharge of debts in certain circumstances. After the meeting of creditors, a creditor has 60 days to file an objection to discharge. If the court rules for the creditor, the debt is not discharged in bankruptcy and will still be owed to the creditor after the completion of the proceeding

What is an Objection to Discharge?

An Objection to Discharge is a motion by a creditor to a bankruptcy court asking the court not to discharge a person’s specific debt owed to that creditor. If the court grants the motion, the debt is not discharged in bankruptcy and remains due. The Bankruptcy Code lists several situations in which a discharge can be denied even if the debt would otherwise be eligible for discharge. Some of the most common reasons creditors file an objection are:

• The debt is for a luxury item over $725 that was purchased on credit within 90 days before the bankruptcy filing
• The debt is for a cash advance over $1,000 within 70 days before the bankruptcy filing
• The debt was incurred through fraud, false pretenses, or misrepresentation, such as a person taking on debt with no intent of paying it back
• The debt is a credit card debt that was used to pay a nondischargeable debt
• The bankruptcy petition was fraudulent or filed to abuse creditors
• The debt is owed because of the debtor’s wrongdoing, such as damage caused by drunk driving

Usually, a creditor will only object to the discharge of debts owed to it. In more extreme circumstances, the bankruptcy trustee responsible for overseeing the process might file an objection to the entire bankruptcy petition if he or she believes the debtor was not honest in filing. 

Regardless of who filed the objection, any debtor facing an objection should contact an attorney. It’s also a good idea to contact an attorney before filing for bankruptcy to make sure the filing is correct and minimize the chance of objections being filed by creditors. 

What happens when a creditor files an objection?

A creditor’s objection does not automatically prevent a discharge of debt. The debtor gets a chance to file an answer to the objection, and the court may hold a hearing to decide the issue. This is called an adversary proceeding, and it works much like any other lawsuit. Any debtor who faces an objection to discharge should consult with an attorney on the best defense strategy available to them. 

The creditor bears the burden of proving that a debt should not be discharged, and an experienced bankruptcy attorney will be able to respond to creditor objections in a way that will be most advantageous for the person filing for bankruptcy. If the objection is based on alleged bad faith by the creditor, it’s possible to defeat the objection by proving something was a mistake rather than intentional fraud.  Often, the cost of litigation will persuade a creditor to settle for less than the original amount of the debt.

What should I do if a creditor files an objection to discharge?

If a creditor files an objection to discharge in your bankruptcy proceeding, you should contact an attorney immediately. Bankruptcy proceedings can be complex, and your odds of success are best if you have a lawyer to argue on your behalf. If you’re considering bankruptcy, a lawyer can also help you file correctly to avoid objections. 

The lawyers at Rosenblum Law are experienced in bankruptcy matters and can make sure that your bankruptcy goes as smoothly as possible. Email us or call 888-815-3649 for a free consultation today.