If I File Chapter 7, Will I Get a Discharge?

15 Jan If I File Chapter 7, Will I Get a Discharge?

If you are considering filing a chapter 7 bankruptcy, you might be wondering if you are guaranteed to get a discharge of your debts.

You’re right to wonder — it certainly is not gauranteed!

It would be disappointing, maybe even financially ruinous, to file a chapter 7 case, only to have an unforeseen problem result in the ultimate bankruptcy disaster, denial of a discharge.

Thankfully, however, there are precise legal reasons, which can be predicted in advance, for your discharge to challenged. Knowing what they are will help you avoid needlessly creating a problem in your bankruptcy, and help you predict the outcome of your case before you file it.

The law presumes you are entitled to a chapter 7 discharge, unless there is a specific legal reason, raised by the trustee, the U.S. Trustee, or a creditor, by filing a court challenge before the deadline passes. The deadline is specified by the court upon filing, and usually is about 100 days after you file the case.

The reasons for denial of discharge may summarized as follows: for “cause” under section 707(a), because you “fail” the means test or can afford a chapter 13 under section 707(b), or because you have committed a “bad act” listed in section 727.

Denial of discharge based on a prior bankruptcy is beyond the scope of this article.

Your discharge can be denied for cause if you fail to file the required papers. Obviously, this should not happen if you and your lawyer pay attention to the filing requirements.

Your discharge can be denied, and a conversion to chapter 13 may be necessary, if either your means test or your actual income and expenses show you can afford to repay a meaningful portion of your debts in a chapter 13 case.

Your lawyer can tell you if this is likely to happen, before the case is filed. Remember that it won’t be the end of the world if you have to convert to chapter 13. You still get a discharge of debts; you just have to make payments consisting of what you can afford (usually) for three to five years before you can get it.

Your discharge can also be denied under section 727 if you have committed misconduct before or during your chapter 7. Intentionally failing to list all your property and personal possessions, or all your debts, or all your income, or making any other false statement in connection with your bankruptcy case, may lead to denial of discharge.

Selling, transferring, or giving away money or property, if done for the purpose of hindering, delaying, or defrauding a creditor or the trustee, within one year before you file bankruptcy, may also lead to denial of discharge.

Failing to keep adequate books and records, or failing to explain where your money or property went prior to filing bankruptcy, is a serious problem as well.

Additionally, you cannot receive a discharge unless you take a financial management course (the second “credit counseling” class) during your chapter 7.

By knowing what the grounds for denial of discharge are, you can maximize your odds of success in your chapter 7 case.

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Craig Andresen is a Minnesota bankruptcy attorney who represents both consumers and small business owners in chapter 7 and chapter 13 cases. With thirty years experience, Mr. Andresen is a frequent speaker on the topics of stopping mortgage foreclosures, and stripping off second mortgages in chapter 13. His office is located in Bloomington just across the street from the Mall of America. Call his office at (952) 831-1995 for a free consultation about protecting your rights using bankruptcy.
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