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Discharge and Dischargeability Actions

An honest debtor is entitled to receive a discharge in bankruptcy. If somebody sues you to deny your discharge, you have the right to fight back. If you are a consumer debtor and you win, you can make the plaintiff pay for your attorneys’ fees for defending the case. If somebody sues you to deny the dischargeability of a debt, you can defend. Frequently, in consumer cases, the mere fact that you are defending is enough to make a creditor back down.

On the other hand, some debtors are simply dishonest. Objecting to their discharge might be an effective way to give you a chance to get paid in the future. In addition, some sorts of debts are not dischargeable. If the debtor gets a general discharge in bankruptcy, you have the chance to collect a debt in the future even if the debtor is released from all other debts.

We at Lakelaw have argued both sides of these issues.

Frequently Asked Questions – Discharge and Dischargeability

How likely is it that a discharge will be denied?

It is easy to plead that a person is not entitled to a discharge. The more complicated the case, the harder it is to prove. If you catch a debtor in a dead-bang lie, proof of discharge is not so difficult. If you are trying to prove something about the debtor’s intent or the debtor’s financial condition years ago, it might not be so easy.

When does someone have to decide to file a complaint about discharge or dischargeability?

A complaint to deny discharge or dischargeability must be filed within 60 days after the first date for the meeting of creditors under Section 341 of the Bankruptcy Code. This date can be extended on application to the court as long as there is good cause and as long as the request is made before the date within which to file has passed.

How do I prove my case?

The Bankruptcy Rules let you get evidence about your potential case. You have to ask the court for permission and then you can subpoena documents and records and take testimony of people to see if you have a case. This is expensive.

What kind of evidence is needed?

The plaintiff needs evidence to prove by the preponderance of the evidence every element of the complaint. You can compel the debtor to testify but you will have to subpoena him to compel his attendance. The debtor can plead the Fifth Amendment if he or she fears the testimony he might give could incriminate him.

Do the Rules of Evidence apply?

Yes, and frequently we can use them to exclude evidence which is not admissible.

What kinds of documents might I want to look for?

You can look for bank records, tax returns, emails, third party documents, accountants work papers and computer generated and maintained evidence. You can search the internet to find evidence as well. Anything which leads to facts which prove your case is fair game. We also look for inconsistent statements in the debtors’ schedules especially compared to public records.

Case Study

The bank sued our clients, Joe and his three brothers, seeking to hold over $2 million in debt to be non-dischargeable. Our clients held their houses in tenancy in common with their wives. Tenancy in common property is not available to pay the individual debt of the debtors. The debtors’ financial statements stated they held the property “jointly” with their spouses. Property in joint tenancy is available to pay individual debt – at least to the extent of a one-half interest. We established that the Bank failed to do a title search on the debtors’ real estate even though that was their standard operating procedure according to their credit manual. So the Bank did not “justifiably rely” on the debtors’ statements. As a result, we settled the case very favorably to our clients.