Debts Whose Write-off Can Be Challenged in Bankruptcy

Occasionally the bankruptcy court may need to decide whether you can discharge a debt which the creditor doesn’t want to be discharged. 

One of the realities about filing a consumer bankruptcy case is that while many or even most cases are straightforward, a case can be more challenging if there is an aggressive creditor who challenges the write-off (“discharge”) of its debt. Most cases have no creditors raising such challenges. That’s because most creditors accept your bankruptcy filing as a normal part of their business. But sometimes creditors take it personally and/or believe that they have legal grounds to prevent their debt from being discharged.

This blog post and the next one are about what happens when a creditor raises such a discharge challenge. The topic here is not about debts which will clearly not be discharged because they fit certain special criteria, like recent income taxes or court ordered child or spousal support obligations.  Instead this is about debts that would normally be discharged unless the creditor can prove that the debt arose out of some bad behavior by you, usually involving some sort of fraud, theft, or similar behavior.

These Debts are Discharged Unless the Creditors Objects

Before you file bankruptcy, a creditor’s representative or collection agent may tell you that the debt can’t be discharged in bankruptcy, or that they will challenge you if you file bankruptcy. Most of the time they’re just playing games, a part of their attempt to persuade you to pay them. It is important to tell your attorney about any threat like this so that he or she can determine whether the threat has any legal basis. If it was an empty threat, that will help you not worry unnecessarily about it. And if the threat does have a possible legal basis, your attorney will be better prepared for the creditor’s challenge if it does in fact come.

It’s important to realize that even if a challenge has possible legal merit, the creditor may not pursue it for practical reasons. Creditors have good reason to hesitate putting out more money—in filing fees and attorney fees—to try to have the debt not be discharged, only to lose that battle. The law has a “presumption” that your debts will be discharged, so the burden is on the creditor to show that a debt should not be.

Creditors Have a Strict Deadline to Raise Such Challenges

And creditors have a very limited timeframe to make this challenge. As long as you appropriately listed the creditor in the bankruptcy documents, any creditor that has any objection to the discharge of its debt must formally file an objection with the bankruptcy court or forever lose its ability to do so. It must do so within 60 days of your meeting with the bankruptcy trustee; since that usually happens about a month after your case is filed, within about 3 months after filing you will know if there will be any such challenges.

The “Adversary Proceeding”

Sometimes the creditor contacts your attorney in advance about an intended challenge, usually because it’s hoping to settle the matter by getting you to agree to pay part or all of the debt.

But much of the time the creditor simply files a formal complaint at the bankruptcy court. This begins what is in effect a highly focused lawsuit, called an adversary proceeding. Its only purpose is to determine whether the creditor can prove the facts that the law requires to be proven for the debt to be excluded from discharge.

To be clear, the issue is usually NOT whether you owe the debt in the first place—it’s usually assumed that you do owe the debt. Rather the issue would be whether, for example, you incurred the debt by falsifying a credit application, or by coercing a relative to change their will on your behalf… fraudulent behavior of this sort.


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