Reasons for Denial of Discharge

There are several different reasons people and small businesses file for relief under the various Chapters of Bankruptcy. In Chapter 7 filings, the entry of a Discharge is the final order from the Court which serves as the legal foundation for release and cancellation of personally liability for legal debts and financial obligations. In simple terms, this means the Debtor is no longer legally obligated to pay any debts that are discharged.

The Discharge is the basis of the Fresh Start concept. However, for a few reasons, the discharge of some or all the debts may be denied.

Cincinnati Lawyer for Bankruptcy Discharge Denial

The Bankruptcy process is a complex mix of both State and Federal laws and one can easily become lost or misguided without competent, experienced legal counsel as your advocate. Steiden Law Offices’s professional attorneys are trained and experienced in navigating your case to a successful, uneventful conclusion with the entry of your Discharge. If you are in the Northern Kentucky or the greater Cincinnati areas, an experienced, caring law firm who have substantial experience with bankruptcy can make a significant difference in the outcome of your case.

Exceptions to Discharge

The Courts have long stated, as a general rule, that honest Debtors are entitled to entry of a Discharge and the cancellation and extinguishment of their scheduled financial debts. There are several different reasons why a Discharge may be denied to a Debtor in a Bankruptcy.

There are two general concepts at work with the denial of a Discharge. One involves an act or series of acts by the Debtor of certain types of improper behavior or interference with the Bankruptcy process. In cases where a dishonest Debtor’s improper conduct is found, the Court may deny the entry of the Discharge as it pertains to all the debts and claims filed in the case. Another basis for this denial of Discharge has involves the type and character of the debt sought to be discharged.

Nondischargeability of Debs

A denial of discharge involves debts which are scheduled in the case but as a result of their type and character, are not eligible for a discharge, even though the general Discharge will be entered in the Bankruptcy case. The Bankruptcy Code has several provisions which categorize certain types of debts which are not subject to or eligible for the general Chapter 7 Discharge.

Some examples of these types of debts would be Federally Insured Student Loans, true Alimony, Child Support, debts incurred through fraud, payroll taxes, certain types of income taxes, damages incurred in connection with the alcohol impaired operation of a motor vehicle as well as others.

The denial of a discharge based on the nature or character of the debt is not automatic. There are procedural rules that require an objecting creditor to timely file a certain proceeding known as an Adversary Proceeding which requests the Court to deny the Discharge as to a specific debt. Generally, if the objecting creditor does not timely file its dischargeability Complaint, the debt will be included in the general Discharge. The deadline to file such an action is established by the Commencement Date and the date set for the Section 341 Meeting of Creditors.

Denial of General Discharge

The Bankruptcy Code has a code section which provides a creditor or other Party In Interest, such as the Bankruptcy Trustee, a mechanism to seek the denial of the general Discharge to a Debtor who has been dishonest with the Court and the Bankruptcy Trustee or was dishonest in their Bankruptcy Schedules, lied under oath or interfered with the administration of their own Bankruptcy case or the Case of another Debtor. These types of legal proceedings are generally infrequent but they do occur.

This Denial of Discharge is often called a ‘727 Action’. This filing is a tool used by the Bankruptcy Trustee and creditors to maintain the integrity and truthfulness of the Bankruptcy process. All of the Bankruptcy documents such as the Petition, Schedules, and Statement of Financial Affairs are executed by the Debtor under penalty of perjury.

Major and significant omissions in scheduling may form the basis for an action by the Bankruptcy Trustee to seek to deny entry of the general Discharge. An example of this would be a Debtor who owned a piece of real estate and did not list it on the Real Property Schedule or ownership of an automobile which is not scheduled on the Personal Property Schedules. Often times these challenges to the Discharge are the result of willful omissions by the Debtor. Rarely do innocent mistakes and minimal omissions form the basis for such legal action.

Asset Schedules

The risk of filing a Bankruptcy case and not receiving a Discharge depends in large measure on honesty and full disclosure in the paperwork filed with the court and the sworn testimony provided by the Debtor. It is extremely important that you properly and fully complete your intake Bankruptcy questionnaire so that your case will not proceed in the shadow of a non-disclosure which could imperil your right to a Discharge.

Any doubt on the Debtor’s part whether to include and disclose should be made in favor of greater, full and complete disclosure. This full disclosure will allow your attorney to provide the highest level of advocacy to your case. The old adage about not disclosing information to your attorney is correct. Your fresh start is waiting at the end of your Bankruptcy case. Make certain that all of your information and disclosures are complete and correct and remember, your attorney can only help you if they are properly briefed and advised about your case.