3 Reasons Creditors Object to Discharge in Chapter 7 Bankruptcy In Chapter 7 bankruptcy, debts are separated into two categories:
Dischargeable Debts — The filer’s liability for these debts will be wiped out when the case is discharged by the bankruptcy court. That means the filer is no longer responsible for paying off the debts which have been discharged.
Non-Dischargeable Debts — A bankruptcy discharge does not affect the filer’s liability for non-dischargeable debts. In other words, he or she will still be required to pay these debts off, even following a successful bankruptcy case. Most of the major sources of debt in Californian households today, including credit card bills and medical bills, are dischargeable. However, a bankruptcy trustee or creditor can object to the discharge of a certain debt if certain criteria are met. In order to dispute the discharge of a debt, the creditor must file a complaint in court by a certain deadline. While bankruptcy courts are strict about holding creditors and trustees to these deadlines, exceptions may occasionally be granted when filing delays are caused by forces outside of the filer’s control, such as the recent extension granted for Berkowitz’s complaint. The grounds on which a creditor may object to the discharge of a debt are enumerated under 11 U.S. Code § 523, which creates multiple exceptions to discharge in bankruptcy cases. These exceptions, or grounds for objection, apply not only to bankruptcy cases in California, but throughout the United States. Some are fairly straightforward, such as the provision under 11 U.S. Code § 523(a)(5) that explicitly makes debts “for a domestic support obligation,” such as alimony or child support, non-dischargeable. Others are more complex and difficult to clearly interpret and apply, which is one of the many reasons it is so important to review your debts with a skilled California bankruptcy attorney, who can help determine which of your debts are dischargeable and how you could be impacted by Chapter 7 or Chapter 13 bankruptcy. Under the U.S. Bankruptcy Code, a few examples of debts that can be objected to include:
Debts related to certain taxes.
Debts, other than compensation for financial losses, that are owed to the government, such as fines and penalties, with several exceptions.
Debts related to death or personal injury resulting from a car accident or other vehicular accident involving driver intoxication.
Debts related to goods, property, or other items or services obtained by fraud or false statements, in addition to debts related to embezzlement or larceny (theft). For example, Berkowitz claimed he was defrauded by Turchin. A few specific reasons a creditor might object to the discharge of a specific debt, or even the discharge of your case, are that the creditor believes:
You used a credit card to obtain cash advances, collectively amounting to more than $950, during the 70 days before your bankruptcy.
You used credit cards to purchase unnecessary items during the three months leading up to your bankruptcy. In this situation, you would need to prove that the items were essential.
You supplied false or incomplete information when submitting a loan application. On a related note, it’s worth pointing out that suspected acts of fraud, such as concealing assets, may lead not only to the discharge of a specific debt being denied, but potentially to dismissal of your entire case — or even to criminal investigation and prosecution. According to statistics, the IRS initiated nearly 30 investigations for bankruptcy fraud during 2016 alone, more than half of which led to the sentencing of the defendant, with an average of 17 months to serve.