The primary reason someone files bankruptcy is to get a discharge of debts. Therefore, before filing your bankruptcy, it’s logical to wonder what would cause you to be denied a discharge order.
Denial of discharge is primarily addressed in 11 USC 523 and 11 USC 727. The primary reason someone would be denied a discharge is due to bad behavior, either to one individual creditor (523) or the creditor class as a whole (727). This will not involve innocent mistakes by the debtor, but rather fraudulent activity, concealing assets, making false claims or not complying with court orders, among other things.
An objection to discharge can be brought by any party in interest, but usually is brought by a creditor or the United States Trustee. It is not enough for one of these parties to feel the debtor is engaged in wrongdoing. These entities must file an adversary proceeding within 60 days of the meeting of creditors to put the issue of objection to discharge before the Court, which would ultimately issue a ruling.
The innocent way a debtor can be denied a discharge is based on previous filings. One such example is a debtor can be denied a discharge in Chapter 13 bankruptcy if he has filed a Chapter 7 bankruptcy within four years of the Chapter 13 filing and received a discharge in that Chapter 7 case (see 11 USC 1328(f)(1)). Believe it or not, there are still plenty of valid reasons the debtor might file a Chapter 13 when ineligible for a discharge.
Also note that “denial of discharge” is totally different than saying certain debts are ineligible for discharge. In other words, when you get a discharge order, you have not been denied a discharge even if your discharge does not apply to certain debts, like past due child support or income tax liability.
Finally, discharge can be denied if the debtor fails to complete a financial management course and file the certificate of completion with the court. This should never be a reason the debtor is denied a discharge because it is entirely within the debtor’s control. However, it should be stated that if the case is closed without a discharge for this reason, the judge will usually allow it to be re-opened upon the filing of a motion to allow the certificate to be filed and the discharge to be entered.
Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA). He is a regular contributor to bankruptcyblog.org has bankruptcy attorney offices in Jonesboro, Cumming, Atlanta and Dunwoody.