What Happens if a Creditor Objects to Bankruptcy?

Not all creditors follow in lock step with the adjudications of bankruptcy trustees. Some creditors fight tooth and nail to get a piece of the debtor's estate to resolve long standing financial commitments. Under certain circumstances, creditors may be able to challenge discharges successfully. These potential rationales are spelled out in the bankruptcy code's 727(a) section.

If, for instance, the debtor conceals property that should by rights be included in the bankruptcy estate to be distributed to creditors, or if the debtor violated earlier discharges relating to the same debt, the court may overturn the discharge.

Similarly, if the court decides that the debtor engaged in fraud, perjury, defalcation, or other violations of the bankruptcy code, the creditor may be entitled to a relief from discharge.

The rules with respect to creditor protests vary based on the type of filing (Chapter 7, Chapter 12, Chapter 13 e.g.) as well as the precedence of state rulings. Debtors must meet certain court appointed benchmarks to qualify for discharge. For instance, most debtors must complete a financial management course to qualify for the discharge -- if a creditor can prove that the debtor never made good on these educational requirements, relief from discharge may be granted.

That said, the creditors are prohibited from following up on discharged actions after the bankruptcy has been completed. Debtors can actually report creditors back to the court for civil contempt charges if they continue to harass, send legal notices, or call.

Conversely, debtors may choose to remunerate creditors for discharged debts once bankruptcy has been resolved. This typically does not occur in situations where creditors are third party strangers. However, if a pediatrician, for instance, treated a debtor's child and that bill was later declared discharged by the bankruptcy court, the debtor may subsequently attempt to repay the pediatrician out of goodwill.

The timeframes and legal hurdles associated with creditor protests to discharge requests can get quite complicated, so all parties involved should become well-versed in discharge requirements. Debtors should also be on the look out for over-eager creditor claims and be prepared to challenge inappropriate or inflated creditor charges with documentation.