Although you may have a clear plan for what you want to accomplish by entering into bankruptcy, your creditors have rights too. Below are examples of some common things that may happen in your bankruptcy proceeding that you may not expect.
A creditor or the trustee can object to a debtor's general discharge if the debtor has committed a fraud on the court. For example, if the debtor has been dishonest, uncooperative, or has destroyed or hidden property of the estate the court may deny the debtor's discharge altogether. If a debtor is denied a general discharge, the debtor does not receive the benefit of the bankruptcy. The debtor will remain liable for pre-petition debts, and all creditors are free to pursue the debtor to recover their claims. All in addition to the costs incurred in the abortive bankruptcy, and possible stigma.
A creditor can object to the discharge of a particular debt. In a Chapter 7 case, certain particular debts are not dischargeable under Section 523 of the Bankruptcy Code. Debts that are not dischargeable include:
- debts for certain taxes;
- debts arising from false pretenses, false representation, actual fraud, or false financial statements;
- debts for certain luxury goods and cash advances;
- debts that a debtor fails to list in the bankruptcy schedules;
- debts arising from fraud or defalcation, embezzlement, or larceny;
- debts for alimony and child support, and other obligations arising out of a divorce or separation;
- student loans;
- restitution orders;
- debts arising from willful and malicious injury;
- certain condominium or cooperative fees incurred after the filing of the bankruptcy;
- obligations arising from death or injury caused by the debtor's DWI; and
- a few other, less commonly occurring, debts. When a debt is accepted from the debtor's discharge, the debtor remains liable on the debt and the creditor is free to pursue the debtor to recover the claim.
A creditor (usually a secured creditor) can move for relief from the automatic stay. If the creditor obtains relief from the automatic stay, the creditor is free to pursue its state law remedies with respect to taking action against the property (like repossessing a car or foreclosing a mortgage). A creditor is entitled to relief for “cause.” Usually, cause means the creditor does not feel that it has adequate protection in its collateral. If a creditor wants relief from stay related to an act against property, the creditor must show that the debtor does not have equity in the property and that the property is not necessary to an effective reorganization.
The United States Trustee may decide that you have enough “disposable income” to repay some or all of your debts in a Chapter 13 bankruptcy, and file a motion to dismiss your Chapter 7 case for substantial abuse. You have disposable income if your monthly income exceeds your monthly expenses. (People with debts that are primarily business-related are not subject to this test.) To find substantial abuse, a judge must determine that your debts are primarily consumer debts, not business debts. Debtors in this situation may choose to convert their Chapter 7 case to a Chapter 13 case.
The Chapter 13 Trustee may object to confirmation of your Chapter 13 plan. One of the reasons the Trustee may object is that he or she believes you are not devoting all of your disposable income to payments under the plan. If you cannot confirm a Chapter 13 plan, your case will be dismissed, you will remain liable on your obligations, and your creditors will be free to pursue you to recover their claims.
If you are dishonest and defraud the court, you may be subject to criminal prosecution. You sign your bankruptcy petition under penalty of perjury. If you fail to disclose assets, hide assets, or lie about your financial condition, you may find yourself subject to large fines and jail time.