You seldom need to worry about any creditor objecting to the discharge of your debt to it. They very seldom have the grounds to do so.
If you file bankruptcy, every debt you have a right to write off will almost always be written off. Unexpected challenges in the discharge (write-off) of debts do not happen often.
The Two Categories of Debts that Aren’t Discharged
The first category of not-discharged debts includes those that Congress has decided for some special reason should not be allowed to be discharged in bankruptcy. Among the most common ones of these are spousal and child support, most student loans, many tax obligations, and criminal fines and restitution. If you are being represented by a competent bankruptcy attorney, you will be informed before your case is filed if any of your debts fall into this category.
The second category of debts are those that are subject to not being discharged IF, and only if, the creditor files a formal challenge to the discharge, which can be done only under certain narrow grounds.
Reasons Creditors Tend Not to Challenge Your Discharge of Their Debts
Creditors only raise challenges very seldom because:
1. As mentioned above, creditors have only narrow grounds to challenge the discharge of its debts. They would have to prove in court that you acted inappropriately in certain very specific ways–in essence, that you cheated the creditor in incurring the debt. The inappropriate behavior would have to involve fraud or misrepresentation in applying for or otherwise acquiring the debt, embezzlement, and such. This kind of behavior simply does not apply to most people and their debts. So a creditor would just be wasting its time, and reputation, to challenge the discharge of its debt when it did not have any legal grounds for doing so.
2. The creditor would also be wasting its money. The creditor’s challenge is required to be in the form of a lawsuit filed in bankruptcy court, involving paying a filing fee and at least hundreds of dollars—and potentially thousands–in attorney fees. Most creditors wouldn’t waste their money on a lawsuit in which they had little or no chance to win.
3. Under bankruptcy law in general debts are presumed to be dischargeable if they are not one of the special nondischargeable types of debts in the first category referred to above (child support, taxes, etc.). So the creditor has the burden of providing the necessary evidence—your alleged fraud, for example—to establish that the debt is not dischargeable.
4. Bankruptcy law also provides that creditors risk being ordered to pay for your costs and attorney fees if you defend its discharge challenge and you win—you defeat the challenge. This is one more disincentive for creditors to raise a challenge, especially if its evidence against you is not solid.
So, creditors will usually not challenge the discharge of its debts because they usually don’t have legal grounds to do so. And even a creditor thinks it has some grounds for raising a challenge, it takes significant financial risks doing so.
But What If a Creditor Does Believe It Has Grounds
First, creditors sometimes do really think that the way you incurred its debt gives them grounds for challenging that debt’s discharge. Also the law can favor them when it comes to certain actions by you such as incurring credit card debt or cash advances in the months before filing bankruptcy, writing bad checks even inadvertently, and similar actions which might not seem very egregious.
Second, you may have a creditor who is motivated less by economic good sense than by a desire to cause you trouble, say an ex-spouse or former business partner.
The best way to deal with these situations is:
- be completely honest with your attorney in answering every question he or she asks you, whether during a meeting or when providing information in writing
- if you have any concerns along these lines, make a point of voicing your concerns, and do so early in the process.
If you wonder whether you’ve acted inappropriately with any of your creditors, or if you have any personal creditors who are carrying a grudge, discuss it with your attorney. Not only will you be much better protected from rude surprises. Often you’ll feel the relief of learning that you have much less to worry about than you had feared.