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Can A Creditor Object To A Discharge?

Creditors Can Fight Bankruptcy

When a chapter 7 or chapter 13 bankruptcy is filed, does the debtor, the one who filed for bankruptcy, have an absolute right to a discharge of all the debts? Is a discharge of debt an automatic event that happens after a bankruptcy is filed? Unfortunately for the debtor, the creditor (the party that holds the debt like a bank, credit card company, auto lender) has the right to object to a discharge of the debt. Here’s how it works.

The Creditor

If you are a creditor on a loan or a debt and the person or party that owes you a debt files for bankruptcy, it is likely that the creditor will receive a notice in the mail from the bankruptcy court stating that your debtor has filed a bankruptcy. The notice goes to the creditor because the creditor is listed in the bankruptcy petition. It is in the best interest of the debtor to list all creditors because this will make sure that the debt is included to be discharged in the bankruptcy. After the notice is received, the creditor can file an objection to the discharge of the debt.

What Are the Reasons A Creditor Can Object?

There are many reasons why a creditor can object to the discharge of the debt. We can discuss a few examples here.

1. Creditor believes that the debtor is abusing the use of a bankruptcy
Maybe the creditor feels that you incurred the debt with a plan to file a bankruptcy since the debt was very recent. It is illegal to pre-meditate a bankruptcy filing. So, if the judge agrees with this, they may be able to stop the debt from getting discharged.

2. Creditor believes that you have enough assets to pay the debt
Maybe the creditor has some evidence that you have enough assets to pay the debt. For example, they may know that you kept some equipment which was financed or vehicles that were financed. If the bankruptcy trustee examines property to find assets, then the debt can be stopped from being discharged and assets may be sold to repay creditors.

3. Creditor believes that the debt is a type that is not able to be discharged in bankruptcy
Maybe the debt was mis-categorized and was actually used for education which can’t be discharged in a bankruptcy unless disabled.

These are all just examples of why a creditor may object, but they are realistic type scenarios that could happen. We obviously cannot list all possibilities here, but these are just to give you an idea of some.

What Happens Next?

When a creditor files an objection to a discharge of a debt, it is called a complaint. When a complaint is filed in the bankruptcy court by a creditor, it opens a lawsuit called an “adversarial proceeding” or “adversary proceeding”. This becomes its own case where the bankruptcy court has to decide whether or not a discharge of a debt is denied.

How Could This Apply To Your Situation?

The likelihood of something like an adversary proceeding happening in your bankruptcy case is something that your attorney should be able to help you analyze. If you give your attorney all the information you know and all of it is truthful, the attorney should be able to tell you if your bankruptcy situation will be simple or at risk of an adversary proceeding.

To find out more about this subject, contact us, Bankruptcy Law Professionals, at 855 257-7671 to set up a consultation with our attorney.

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