When Your Discharge Can be Denied
While there are certain debts that cannot be discharged in a personal bankruptcy case, or are very hard to discharge (such as student loan debt), there are a variety of circumstances under which a court can deny you your ENTIRE discharge. If the court finds you violated one of the following provisions, you will not receive a discharge and all of your debts will remain in place.
The Consequences of Denial are Severe
This means that you will still be liable on all of your debts, essentially leaving your bankruptcy ineffective. In addition, a discharge denial due to fraud still allows the trustee to administer non-exempt assets. This means that you could lose property to the trustee and still not receive debt relief. While such a finding is very serious, an open and honest debtor should have nothing to worry about. Normally the only way for a court to deny you a discharge is if you are either dishonest or you fail to follow court rules and requirements.
The following are some of the main reasons that a bankruptcy court might deny you the benefit of your chapter 7 bankruptcy discharge:
1) Attempt to Defraud: One common ground for denying a discharge is when the debtor, with intent to hinder, delay or defraud a creditor: transfers, removes, destroys mutilates, or conceals PROPERTY within one year before the date of filing for bankruptcy or any time AFTER the date of filing. Although this sounds somewhat complicated it is basically a rule that prohibits a debtor from giving away assets on the eve of bankruptcy. However, whether or not a court will find specific fraudulent “intent” necessary for a denial of discharge, is a highly fact specific inquiry. As such, full disclosure to your bankruptcy attorney about all transfers or changes in property prior to or after the filing of bankruptcy is very important. If you are not completely honest, you run the risk that a court may deny you your discharge.
2) Information: The debtor conceals, destroys, falsifies, mutilates or fails to keep information regarding the debtor’s financial condition. This would involve destroying records that could lead the trustee to property you haven’t disclosed or simply not being able to back up assertions about your finances contained in your bankruptcy schedules.
3) Lying: The debtor, in connection with their case lies or makes a false statement. When you file for bankruptcy, you represent under penalty of perjury that everything contained in the filing is true and accurate. If it is later revealed that omissions were made, the trustee or a creditor can challenge your discharge. It is vitally important to be totally and completely truthful with your attorney and the court.
4) Loss of Assets: The debtor cannot satisfactorily explain a loss of assets or deficiency in assets
5) Refusal to comply with court order: The debtor refuses to obey a lawful order of the court
6) Failure to take instructional course: The debtor fails to complete an instructional course about personal financial management. Under the bankruptcy code two instructional courses must be taken. The first is a credit counseling requirement that must be fulfilled before you can begin your bankruptcy case. This second requirement is a financial management course that must be completed during your case and is a requirement for getting a discharge. Your attorney can advise you on the proper instructional course to take to meet this requirement.
Communication With Your Attorney is the Key
While reading the possible ways a court may deny your discharge may worry you, you must remember that all of these grounds for denial can be avoided by your full open and honest communication with your attorney. Even if you think you a court might find you in violation of one of the above acts, the law surrounding these provisions is highly litigated and fact dependent. Only a qualified bankruptcy lawyer can tell you whether there is a possibility that you may be denied a discharge. As long as you are honest, you likely have little to worry about. Before making any decisions about your bankruptcy estate or in relation to filing bankruptcy please contact a bankruptcy attorney.