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The Bankruptcy Discharge (Part II): What Can Jeopardize it?

by | Jun 28, 2017

In my prior post, I discussed what it means to get a discharge, what debts are typically covered, and what debts you may not be able to discharge if it is necessary to keep certain secured property.  In this article, I will discuss what actions may possibly preclude the issuance of a discharge or may cause it to be set aside.

If a creditor feels that it has been defrauded by the debtor(s), it could file a lawsuit in the underlying bankruptcy case (called an adversary proceeding), to have its particular debt be determined by the Bankruptcy Court to be non-dischargeable.  Usually, these claims are based upon some type of fraud allegedly perpetrated by the debtor upon the creditor.  Should the creditor prevail on such claims, then its debt would survive the bankruptcy filing and they could, thereafter, take collection action to recover thereon, via garnishment of the debtor’s wages and bank accounts, execution against property, etc.

A creditor, the duly appointed panel Trustee in the case, or the Office of the U.S. Trustee (a supervisory governmental agency), could also take action to deny the debtor a discharge altogether (meaning, for most people, that you would have effectively gone through bankruptcy for nothing).  In order to do so, they would have to prove the debtor(s) have, with intent to hinder, delay, or defraud a creditor or the Trustee, transferred, removed, destroyed, mutilated or concealed property within one year before the bankruptcy filing was made, or done so, through acquisition of property the Trustee would have otherwise been entitled to receive, after the filing was made.   Likewise, if they have lied to the Trustee or concealed information related to their property from the Trustee, they could jeopardize their discharge.  Furthermore, the debtor(s) refusal to obey a lawful order of the court could result in a loss of their discharge.

In addition, the Trustee, a creditor, or the U.S. Trustee may take action to revoke a prior issued discharge on the basis of fraud, if the debtor acquired property that should have been administered by the Trustee as property of the estate and knowingly and fraudulently failed to report such property to the Trustee or deliver such property to him/her.  These actions usually have to be taken within one year after the discharge is issued and the Trustee must show that he or she had no knowledge of such actions prior to the issuance of the discharge.  The bankruptcy attorneys at Damon, Ver Merris, Boyko & Witte, PLC are ready to provide you with representation if you are involved in such claims.

  The Order of Discharge, which is sent out to all scheduled creditors, also implements what is called the “discharge injunction”, which precludes further creditor action to collect the debt.  Like the automatic stay, which immediately goes into effect with the filing of the case, thus precluding any legal action (or the continuation of any legal action) against the debtor(s), the discharge injunction precludes any further action to collect the discharged debt, upon issuance of the discharge.  Should a creditor violate the discharge injunction, it could be hauled into court and be subject to fines and penalties

Knowing, beforehand, what debts might be extinguished and which ones might survive bankruptcy is critical if you are thinking about filing for bankruptcy relief.  The professionals at Damon, Ver Merris, Boyko & Witte, PLC, can guide you through the process, provide sound legal advice as to the best Chapter to file under, and when to time such filing.  We are here to help.

While this posting originates from a law office, none of the contents should, in any way, be considered legal advice. If you have not signed a retention letter describing the legal services to be provided and the amount to be paid for such services, you are not a client of this firm.

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