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Posted by: Erik Clark
Last updated April 13, 2017.
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. 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.
If the court finds you violated one of the following provisions, you will not receive a discharge of your Chapter 7 bankruptcy and all of your debts will remain in place, and you won’t begin working to rebuild your credit. Here are six ways to lose your 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. Concealing or Destroying Information
Your bankruptcy also can be denied if you conceal, destroy, falsify, mutilate, or fail to keep information regarding your 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.
If you lie in connection with your case or make a false statement, your bankruptcy can be discharged. 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
This is when you cannot satisfactorily explain a loss of assets or deficiency in assets. Be sure to note that under a Chapter 7 bankruptcy, most debtors keep their property — so your assets most likely will be protected.
5. Refusal to comply with court order
This seems like a no-brainer, but if a debtor refuses to obey a lawful order of the court, they could be in trouble. And if your bankruptcy case is denied simply because you failed to comply with a simple court order, you’re going to keep getting those harassing creditor phone calls. Keep in mind that after a discharge, collectors who still call are violating federal law.
6. Failure to take instructional course
When you fail to complete an instructional course about personal financial management, you run the risk of getting your bankruptcy denied. Under U.S. 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. The 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, which could cost anywhere from $20 to $100, depending on where you file. Much cheaper than having your bankruptcy case denied and refiling all over again.
The key to a successful discharge? Your bankruptcy attorney
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 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, get a free case evaluation today. You can call us 24/7 at 877-280-4299.
Erik Clark is one of the leading bankruptcy attorneys in Southern California who has had the privilege of representing thousands of clients in chapter 7 and chapter 13 bankruptcy cases in the Los Angeles area. Erik has served as the past President of the National Consumer Bankruptcy Litigation Center (NCBLC) and the American Consumer Bankruptcy College (ACBC). His firm, Borowitz & Clark, is committed to using bankruptcy law as a tool for social justice and was one of the first consumer law firms to join the Law Firm Antiracism Alliance.