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Discharge And Dismissal
LAWDOG is intended to assist in the understanding of basic concepts. See Disclaimer. Always obtain legal advice from legal professionals.
Discharge
Dismissal
Exceptions To Discharge
Bankruptcy Code Section 727 lists grounds under which a Court may deny a discharge to an individual debtor in a Chapter 7 case. Grounds include that the debtor transferred, removed, destroyed, or concealed property of the debtor or estate, failed to keep or produce adequate books or records, failed to satisfactorily explain an asset loss, committed a bankruptcy crime or failed to obey a lawful order. Where a prior Chapter 7 discharge was granted or denied within the last 6 years, or where the debtor completed certain prior chapter 13 plans, the debtor may not be entitled to a discharge in a second Chapter 7 bankruptcy. Discharge is ordered for individual debtors only, not for partnerships or corporations. See Section 727 reproduced here for illustration purposes only.
Claims Which Are Generally "Nondischargeable"
Certain debts of an individual debtor may be "non-dischargeable" under Section 523 of the Bankruptcy Code. Section 523 provides that a discharge generally does not discharge certain taxes or customs duties, certain spousal or child support obligations, or fines, penalties, or forfeitures to a governmental unit. In addition, certain student loans, death or personal injury caused by debtor while intoxicated, and a debt to which the debtor waived, or was denied, a discharge in a prior case may be "non-dischargeable". See Section 523 reproduced here for illustration purposes only.
Claims Which May Be Found To Be "Nondischargeable"
Certain other types of claims may be found to be nondischargeable under Section 523. Provided that the debtor has properly scheduled the debt and provided notice of the Bankruptcy, these types of claims are discharged unless the claimant timely files a proof of claim, and timely files a complaint for a determination of dischargeability of such debt. Debts that are for fraud while the debtor was acting as a fiduciary, embezzelment, or larceny are listed in this category. Also included are willful and malicious injuries and certain property damage caused by the debtor.
The section which may be of most interest to creditors is Section 523 (a) (2).
Section 523 (a) (2) provides that a claim may be found, by the court, to be nondischargeable by an individual debtor, for any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by use of a materially false written financial statement respecting debtor or an insider, on which the creditor reasonably relied, and that the debtor caused to be made with intent to deceive. A claim may be found, by the court, also under Section 523 (a) (2), to be nondischargeable by an individual debtor, for any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud. See Section 523 (a) (2) reproduced here for illustration purposes only.
Where consumer debts for "luxury goods or services"owed to a single creditor or cash advances on a credit card or other open end credit plan, aggregating more than $1,000, are incurred by an individual debtor, on or within 60 days before the Bankruptcy filing, these items are presumed to be nondischargeable. "Luxury goods or services" do not include goods or services reasonably acquired for the support or maintenance of the debtor or a dependent of the debtor; an extension of consumer credit under an open end credit plan is to be defined for purposes of this subparagraph as it is defined in the Consumer Credit Protection Act. See Section 523(a)(2)(C) reproduced here for illustration purposes only.
A creditor may file an adversary action to object to the discharge of a specific debt. Under Bankruptcy Rules, Rule 7001, an adversary proceeding may be filed in a debtor's bankruptcy action for certain specific reasons. An adversary proceeding may be filed to recover money or property of a debtor, for the sale of a debtor's property by a co-owner, to object or revoke a discharge, to revoke the confirmation of a reorganization plan, to determine the dischargeability of a debt, to obtain an injunction or other equitable relief, and for other matters. Creditors also may initiate adversary proceedings to determine the validity or priority of a lien, to determine the validity of a debt, to obtain an injunction, or to subordinate a claim of another creditor. If the creditor prevails, the debt or claim is declared to be non-dischargeable by the Bankruptcy Court, and the creditor may attempt to recover the debt under state laws which may apply. The bankruptcy law, however, provides a very short time period for the filing of an adversary action to determine the dischargeability of a debt. See Bankruptcy Rules, Rule 7001 reproduced here for illustration purposes only.
Under Bankruptcy Rule 4007, A debtor or any creditor may file a complaint to obtain a determination of the dischargeability of any debt. In a Chapter 7, 11, or 12 Case, a complaint to determine the dischargeability of any debt pursuant to Sec. 523(c) must be filed not later than 60 days following the first date set for the meeting of creditors held pursuant to Sec. 341(a). The court must give all creditors not less than 30 days notice of the time. On motion of any party, after hearing on notice, the court may for cause extend the time, but the motion must be made before the time has expired. See Bankruptcy Rules, Rule 4007 reproduced here for illustration purposes only.
A creditor who believes a particular debt should not be discharged should consult legal counsel immediately upon receiving any information of the filing of a bankruptcy by a debtor. Actual cases should be discussed with your actual legal advisor or legal department.
The court may dismiss a case under Chapter 7 only after notice and a hearing, and for cause, including unreasonable delay by the debtor that is prejudicial to creditors, or nonpayment of any fees or charges. On a motion by the United States Trustee, the court may dismiss for the failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition, certain schedules and information.
Section 707 (b) also permits the court, after notice and a hearing, on its own motion or on a motion by the United States trustee, but not at the request or suggestion of any party in interest, to dismiss a case filed by an individual debtor under Chapter 7 whose debts are primarily consumer debts, if it finds that the granting of relief would be a substantial abuse of the provisions of Chapter 7. There is a presumption in favor of granting the relief requested by the debtor. A copy of Section 707 is reproduced here for illustration purposes only.
