What if a creditor objects to my bankruptcy discharge?

For most people, a bankruptcy discharge arrives without any fight. But creditors and the trustee do have the right to challenge it, and when they do, it happens through a lawsuit filed inside your bankruptcy case, called an adversary proceeding. In my experience, these challenges are uncommon in consumer cases, and most of them can be avoided with planning before you file.

Two kinds of challenges

The deadline to object

In most cases, a complaint objecting to a debt or to your discharge must be filed within 60 days after the first date set for your meeting of creditors. The court can extend the deadline if a request is made before it expires. If no complaint is filed by then, the creditor generally loses the right to challenge.

What creditors look for

Most credit card challenges focus on the last several months before filing. Creditors typically review:

• A sudden jump in charges right before filing, especially after months of carrying a balance
• Luxury purchases or cash advances. Luxury charges over $900 to one creditor within 90 days of filing, and cash advances over $1,250 within 70 days, are presumed non-dischargeable.
• Your income and total debt when you made the charges, and whether you could realistically repay
• Payment history, such as making only minimum payments after large purchases
• Balance transfers or cash used to pay non-dischargeable debts, like taxes or student loans
• Your credit application, including whether you overstated your income

Trustees challenging a whole discharge usually look at property transfers in the year or more before filing, missing records, unexplained losses of money or property, and inaccurate or incomplete paperwork. Mistakes to avoid before filing.

If you’re sued in your bankruptcy

1. You’re served with a summons and complaint. You generally have 30 days from the date the summons was issued to file an answer.
2. Respond on time. If you don’t, the court can enter a default judgment, and the debt won’t be discharged.
3. Information is exchanged. Each side can request documents and ask questions under oath.
4. Settlement discussions. Many cases settle, often for a fraction of the amount claimed or by dismissal.
5. Trial. If the case doesn’t settle, a bankruptcy judge decides. The creditor has the burden of proving its case.

A challenge to one debt doesn’t usually delay the discharge of your other debts.

Possible outcomes

• Dismissed: the creditor drops the case or loses, and the debt is discharged.
• Settled: you agree to repay a reduced amount, often over time, and the rest is discharged.
• Judgment for the creditor: that debt, or part of it, survives the bankruptcy. In a whole-discharge case, you could lose the discharge for all your debts.
• Fees for you: if a creditor challenges a consumer debt as fraudulent and loses, and its position wasn’t substantially justified, the court must award you costs and attorney fees.

Creditors sometimes also request an examination under oath before deciding whether to sue. That’s a request for information, not a lawsuit, but take it seriously and prepare with your attorney.

How to avoid a challenge

• Stop using credit cards once you’re considering bankruptcy, especially for non-essentials and cash advances.
• Don’t transfer, hide, or give away property, and don’t repay family before filing.
• Disclose everything in your bankruptcy paperwork: every account, asset, debt, and transfer.
• Keep your records, including bank statements and tax returns.
• Time your filing. Sometimes waiting until the presumption periods pass is the simplest solution. That’s a conversation to have before you file.

Frequently asked questions