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What if The Trustee or Creditor Says 'no' to A Bankruptcy Discharge

Sept. 17, 2020

A discharge of debt will release and relieve a debtor from all amounts owed. If the Trustee denies the discharge it will be due to your commission of fraud, you lied on your paperwork, or you didn't comply with the law. In this case, you'd be responsible for all debts, you might face fines and even imprisonment if severe enough. But as to a creditor, if there is an objection involving a specific debt, you will be responsible for that debt. A specific debt may matter to a creditor depending on how you took on the debt to begin with. Other debts not objected to will be discharged. Once debts are discharged, creditors are no longer able to sue you, garnish wages or continue collections efforts.

But are all debts dischargeable? The answer simply put is no. Debts which are discharged in bankruptcy include medical bills, credit card balances with exceptions, personal loans and utility bills. Credit card debt that is owed to one creditor amounting to more than $500, for luxury items or services bought 90 days before bankruptcy relief is given, is going to be owed by you the debtor. This debt is not discharged.

Debts which are not wiped out in bankruptcy include child support, student loan debt with exceptions, as well as taxes with exceptions. This can be complicated, but taxes sometimes can be discharged, but only if they are income taxes. Payroll taxes or fraud penalties are never dischargeable. Further, complications arise with student loan debt. This debt may be dischargeable, but only by filing an "adversary proceeding" proving to the court that repaying a student loan would cause such an "undue hardship" on you and your dependents, that discharge would be the only option. This is not a common happening with student loans. Nine times out of ten you're responsible for student loans.

More about tax discharge. The Internal Revenue Service has to have given you notice that there is tax liability about 8 months (240 days) before you even file for Bankruptcy. Further, that you have filed a return at least 2 years before your Bankruptcy case if filed and the taxes must have been due at least 3 years before filing your case. Tax situations can become extremely tedious in handling. I would strongly advise you to speak with a Tax Lawyer who also does Bankruptcy. We are happy to refer you to a Tax Attorney if necessary.

This blog is intended for information purposes only and does not establish legal representation or financial guidance.