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Denial of Discharge in Chapter 7

March 13, 2013

In Chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to a Chapter 7 discharge can be filed by a creditor, by the trustee, or by the U.S. Trustee. The bankruptcy court sets a deadline for objecting to issuing a discharge order in the debtor’s case. To object to the debtor’s discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts an “adversary proceeding,” which is a case-within-a-case. If the issue of the debtor’s right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.

Under Section 727(a) of the U.S. Bankruptcy Code, the court may deny a Chapter 7 discharge if you:
One – Intentionally transferred, removed, destroyed, mutilated, or concealed (or allow someone else to transfer, remove, destroy, mutilate or conceal) property within one year of the filing of your case or property after the filing of the case;
Two – Concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which your financial condition or business transactions might be ascertained (unless such act or failure to act was justified under all of the circumstances of the case);
Three – Knowingly and fraudulently made a false oath (in other words, that you lied);
Four – Given, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act;
Five – Withheld recorded information, including books, documents, records, and papers, relating to your property or financial affairs;
Six – Failed to explain satisfactorily any loss of assets or deficiency of assets; or
Seven – Refused to obey any lawful order of the court, other than an order to respond to a material question or to testify.

Additionally, a bankruptcy court cannot grant a Chapter 7 discharge to: an entity that is not an individual; a debtor who failed to complete the mandatory class on financial management; or to a debtor who received a Chapter 7 discharge within the past eight years or a Chapter 13 discharge within the past six years (although there are special exceptions when dealing with a prior Chapter 13 case). Finally, under Section 523(a)(10) of the U.S. Bankruptcy Code, you can’t get a discharge if you were denied a discharge in a prior Chapter 7.

Denial of your Chapter 7 discharge doesn’t stop the bankruptcy case. The Chapter 7 trustee will continue to gather and liquidate any non-exempt assets, but the debtor does not receive the benefits of the Chapter 7 discharge. The debtor may not ever discharge any of these debts through bankruptcy, and immediately loses the protection of the automatic stay. Essentially, a denial of discharge becomes an asset grab for the trustee and your creditors.

Failing to act honestly in bankruptcy has very serious consequences. Sometimes even an honest mistake can land you in deep trouble. Get the help of an experienced attorney for your case.


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