In most Chapter 7 cases nobody opposes your right to a discharge of your debts. But if so it would likely come from the bankruptcy trustee.
Last week we discussed the role of the Chapter 7 trustee in reviewing your assets at the “meeting of creditors.” Today we get into the other main job of the trustee, to, “if advisable, oppose the discharge of the debtor.” (See Section 704(a)(6) of the U.S. Bankruptcy Code.)
Discharge of Debts
“Discharge” is the legal and permanent write-off of your debts. It’s the primary purpose of filing bankruptcy, particularly a Chapter 7 “straight bankruptcy.”
You get two main forms of relief when filing a Chapter 7 bankruptcy: the “automatic stay,” and the discharge of your debts. The automatic stay is the protection from creditor collections that you get immediately upon filing your bankruptcy case. The discharge you usually receive about 3-4 months after filing. There’s not much point to filing most consumer Chapter 7 cases without the discharge of debts.
Opposing the Discharge
The overwhelming proportion of people who file a Chapter 7 case receive a discharge of their debts. They get no opposition to it by anyone.
The Bankruptcy Code Section on the discharge of debts under Chapter 7 says, the “court shall grant the debtor a discharge,” before listing some exceptions. (See Section 727(a).) The listed exceptions do not apply to most people.
If there is any opposition it tends to be by a single creditor complaining about the discharge of its debt. This opposition would be based on your alleged inappropriate behavior as to just that specific debt. Such a creditor is not challenging your ability to get a discharge of your debts in general. It just doesn’t think you should avoid paying its one debt. Even these more modest challenges are relatively rare.
Challenges to the overall discharge of debts are based on your alleged wrongdoing about the bankruptcy process itself, not just as to one debt.
Wrongdoing that Causes Potential Opposition to Discharge
The exceptions to overall discharge essentially involve bankruptcy fraud. The bankruptcy system is quite generous about discharging debts, but can be harsh towards those who try to abuse the system. Fortunately it’s usually not at all hard to avoid engaging in bankruptcy fraud.
Here are the main types of bankruptcy fraud that could result in losing your ability to get a discharge:
- intentionally giving false or incomplete information in your bankruptcy paperwork, and thereby committing perjury (Section 727(a)(4)(A & D) of the Bankruptcy Code)
- transferring title or property to someone to avoid it being included in your bankruptcy case (Section 727(a)(2))
- disobeying an order of the bankruptcy court (Section 727(a)(6)(A))
- lying to the bankruptcy trustee or judge during hearings (Section 727(a)(4)(A))
The Chapter 7 Trustee’s Role in This
The bankruptcy trustee is not the only person who could raise objections to your discharge. He or she is just the one who’s probably the most likely to do so.
According to the Bankruptcy Code, “[t]he trustee, a creditor, or the United States trustee may object to the granting of a discharge.” (Section 727(c)(1))
As we said earlier, creditors tend to be more interested in just getting their particular debt excluded from the discharge. It isn’t usually to a creditor’s advantage for ALL the debts to not be discharged. Then that creditor is once again competing with all the creditors to get paid.
The United State trustee is an agency—part of the U.S. Department of Justice—tasked with enforcing bankruptcy laws. So it can and occasionally does raise discharge issues on its own.
But the Chapter 7 trustee is the person who reviews your bankruptcy documents, actually meets with you briefly, and likely spends more time on your case than any other potential adversary. So he or she would be the most likely to see any indication of possible bankruptcy fraud.
At the Meeting of Creditors
The main, and usually only, opportunity for the trustee to meet you and ask questions directly is at the so-called Meeting of Creditors. The trustee presides at this meeting. Often none of your creditors appear. So then it’s just a meeting between the trustee and you and your bankruptcy lawyer. It usually does not last more than 10 minutes.
The trustee, or his or her staff, will have reviewed your bankruptcy documents, and likely some other financial paperwork, beforehand. He or she will have a list of questions for you to answer. Your lawyer will prepare you for these questions and help at the meeting as needed.
The focus of the meeting and of the questions is usually to determine if you have any unprotected assets for the trustee to liquidate. The trustee is often just verifying that you have no such assets.
There are seldom questions relating to anything about bankruptcy fraud. But once in a while the trustee may have seen or heard something that needs clarifying, and will ask you to do so. You will also usually get a broad question asking you to verify that you stand by the accuracy of all of your bankruptcy documents.
You and Your Lawyer
If you do get into any questions that indicate that the trustee believes you may have done something wrong, your lawyer will be there to help you.
Usually there are no surprises, at the Meeting of Creditors or anytime during the case, as long as you have been honest and thorough with your lawyer throughout the process.
Chapter 7 is designed to result in the discharge of all or most of your debts. All you have to do is use the system as it was intended. If you have any doubt about what that means or how to go about it, discuss it with your lawyer. You should feel comfortable that you will get the discharge that you are filing the Chapter 7 case to get. And you will have nothing to be stressed about as long as you share any concerns with your lawyer.