Personal Bankruptcy - Discharge vs. Nondischargeability
A personal bankruptcy discharge releases debtors from liability for covered debts and stops creditors from taking action against the debtor or property of the personal bankruptcy estate. Discharges are received in over 97% of personal bankruptcy cases under Chapter 7. A discharge hearing is required, but because the presumption is in favor of dischargeability, few creditor object to trustee recommendations. Commonly, the hearing is conducted administratively 60 to 90 days after the meeting of the creditors. Attendance is commonly not required.
Why a discharge may be denied in personal bankruptcy
Chapter 7 personal bankruptcy was originally intended to provide debtors a fresh start. If a creditor objects, or a trustee, the court will require clear and convincing proof the debtor and/or the personal bankruptcy estate is not entitled to receive the discharge requested. Acceptable reason for denying a discharge are narrow and construed against creditors and trustees. These reasons include the failure to keep adequate books and records, failure to explain loss of assets, bankruptcy crimes including perjury, failure to obey a court order, fraudulent transfers, and concealing or destroying property of the personal bankruptcy estate.
Discharge in personal bankruptcy
After discharge, creditors may no longer start or continue legal actions for collection. Some debts are not eliminated and may be subject to collection, including alimony, child maintenance, support obligations, certain taxes and student loans. Most debts associated with crimes and fraud will be unaffected, such as injury caused by DUI or theft. Likewise, if a discharge is obtained by false pretenses, misrepresentation or perjury, the court will revoke discharge.
Non-dischargeable debts in personal bankruptcy
The effect of a discharge is explained in 11 U.S.C. 727. According to this section, the court shall grant a personal bankruptcy debtor all requested discharges, unless proof is provided showing the debtor engaged in any of the following acts:
- intent to hinder, delay, or defraud a creditor;
- transfer, removal, destruction, mutilation, or concealment of property of the personal bankruptcy estate within one year before the date of filing, or afterward;
- falsification of records, failure to keep or preserve records, or destruction of records pertaining to the personal bankruptcy estate;
- false oath, or intentional withholding of information requested by the trustee or courts;
- failure to provide adequate explanations for the loss of property of the personal bankruptcy estate;
- refusal to obey any lawful order of the court;
- refusal to testify, including the invocation of the 5th Amendment right against self incrimination;
- failure to respond to a material question regarding personal bankruptcy estate, the debtor, books, records or other pertinent topics;
- the debtor received a prior personal bankruptcy discharge under Chapter 7 within six years before filing the petition; or
- the debtor received a prior personal bankruptcy discharge in a Chapter 13 case within six years before filing the petition, in which less than 70% of all debts were paid in full.
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