Under certain circumstances, a debt that you can usually discharge (eliminate) in bankruptcy may become nondischargeable. If a creditor believes that its debt should not be discharged, it can file a complaint in your bankruptcy (called an adversary proceeding) and ask the judge to declare the debt nondischargeable. Read on to learn more about complaints to determine dischargeability of debts in bankruptcy.
When Is a Debt Not Dischargeable in Bankruptcy?
The following are some of the most common reasons you may not be able to discharge certain debts in bankruptcy.
Debts you can never discharge in bankruptcy. Certain types of debt can never be discharged in bankruptcy. Common nondischargeable debts include priority obligations such as alimony, child support, and certain taxes. (To learn more, see Unsecured Debt: Priority vs. Non-Priority.)
Debts that are nondischargeable unless you prove that an exception applies. You may be able to eliminate certain nondischargeable debts if you can show the court that an exception applies. For example, you typically can’t discharge student loans in bankruptcy unless you file an adversary proceeding in your case and prove to the court that paying them back would be an undue hardship on you. (For more information on what it takes to discharge student loans, see Student Loans in Bankruptcy: The Brunner Test.)
Debts that are dischargeable unless a creditor proves otherwise. Bankruptcy can eliminate your personal liability for many types of debt such as credit cards, medical bills, and personal loans. But if certain conditions are satisfied, the creditor may be able to file a complaint in your bankruptcy and argue that the debt should not be discharged.
Who Can Challenge the Dischargeability of Your Debts?
The bankruptcy trustee, U.S. Trustee, and your creditors can all challenge the dischargeability of your debts. In most cases, creditors will file a nondischargeability complaint if they believe that their particular debt should not be eliminated in your bankruptcy.
In contrast, the bankruptcy trustee or U.S. Trustee will typically file an objection to your discharge (and ask the court to deny your discharge altogether) if you commit bankruptcy fraud or otherwise abuse the bankruptcy system. (For more information, see What Happens If the Bankruptcy Trustee Files an Objection to Your Discharge?)
Reasons a Creditor Might Challenge Your Discharge
A creditor may file a nondischargeability complaint in your bankruptcy if it believes that its debt should not be discharged. A debt can become nondischargeable in bankruptcy if the creditor proves that you:
- obtained the debt by using false pretenses, fraud, false representation, or a false written statement about your financial condition (you must have made the statement with the intent to deceive the creditor and the creditor must have relied on it)
- incurred the debt to purchase luxury goods or services over $650 in aggregate in the 90 days prior to filing your bankruptcy (learn more in Pre-Bankruptcy Credit Card Card Charges)
- obtained cash advances over $925 in aggregate during the 70 days preceding your bankruptcy filing
- incurred the debt because you committed larceny, embezzlement, or fraud while acting as a fiduciary, or
- incurred the debt because you caused willful and malicious injury to another person or his or her property.
What Happens If a Creditor Files a Nondischargeability Complaint?
When a creditor files a complaint to determine dischargeability, it essentially initiates a lawsuit in your bankruptcy case. If you don’t want the debt to be declared nondischargeable, you will need to respond to the creditor’s complaint.
If you don’t respond within the deadlines set forth in the summons and complaint, the court will typically enter a default judgment against you. If you oppose the creditor’s complaint, you will have an opportunity to conduct discovery and eventually present evidence and argue your position at trial. The judge will consider the evidence and determine whether the debt should be discharged or not.
Talk to a Bankruptcy Attorney
Because a nondischargeability complaint is the start of a lawsuit, you must be familiar with discovery rules and procedures, have a clear understanding of bankruptcy laws and rules of evidence, and be able to present evidence and litigate your case in bankruptcy court to successfully defend your rights.
For these reasons, consider talking to a knowledgeable bankruptcy attorney in your area who regularly handles adversary proceedings in bankruptcy court if a creditor files a nondischargeability complaint in your case.