Although it doesn’t happen in most consumer cases, creditors have the ability to object to having their debt discharged. Some debts are not dischargeable by default. Others become non-dischargeable once a creditor objects and the court finds that cause exists to exclude a certain debt from being discharged. This article will explore why an unsecured creditor - like a credit card company or bank - would object to a discharge and how the process works.
Written by Attorney Andrea Wimmer.
Updated August 17, 2020
Although it doesn’t happen in most consumer cases, creditors have the ability to object to having their debt discharged. The United States Bankruptcy Code sets forth a number of exceptions to the dischargeability of debts. Some of them are not dischargeable by default. Others become non-dischargeable once a creditor objects and the court finds that cause exists to exclude a certain debt from being discharged. This article will explore why an unsecured creditor - like a credit card company or bank - would object to a discharge and how the process works.
Deadline for Objection
Bankruptcy is supposed to give you a breathing spell followed by a fresh start. That’s why creditors only have 60 days from the date of the meeting of creditors to make this objection. That’s approximately 3 months after a bankruptcy case has been filed.
Once your case is filed, the court will send you Official Form 309A which, among other things, lists the exact date by which a creditor make an objection in item 9 on page 2.
How will I know if one of my creditors objected?
In order to make sure that every side gets to explain their side, these objections have to be done through an adversary proceeding - basically a lawsuit handled by the bankruptcy court. If a creditor objects, they have to serve you with an official summons from the bankruptcy court and a copy of the complaint they submitted to the court. The complaint will explain why they’re objecting.
I got a letter from one of my creditors about this - what does that mean?
It’s not unusual for banks to try and work things out with the filer beforehand, so they don’t have to go through the expensive process of filing an adversary proceeding. That’s what that letter is all about.
If you get a letter like this, it’s not a bad idea to respond to the letter or call the creditor / their attorney as sometimes answering a few questions is enough to get them to back down.
If that doesn’t work, be proactive and schedule schedule an appointment with a bankruptcy attorney in your area. Whether it’s through your court’s self-help center, a local legal aid organization, or a private attorney, chances are you’ll need some guidance for this process.
The creditor can serve you with both the summons and complaint by mailing them to you at your mailing address on file with the bankruptcy court. Unlike in state court proceedings, where it may be necessary that you’re served with a summons in person, mailing it to you is sufficient.
If you received a summons and complaint for an adversary proceeding in bankruptcy court, you have been served and the clock has started running.
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I’ve been served, now what?
You will have 30 days from the date on the complaint to file an “answer” with the court. An answer is a document that tells the court what your position is with respect to each and every thing the creditor is alleging in their complaint.
It’s important that you don’t miss this deadline even if you don’t have a lawyer helping you. If you do, the court may enter a default judgment against you after a certain period of time. Basically, that the creditor wins by default because you didn’t tell the court your side of the story.
Why can creditors object?
Credit card companies can object to having a debt they’re owed discharged if they think that the filer intentionally ran up the balance without ever intending to pay it back. Basically, you can’t get a loan or credit card knowing that you’ll never pay it off because you’ll file for bankruptcy anyway.
What exactly are they objecting to?
They are objecting to having the balance you owe them discharged by the court. Such an objection does not impact your ability to have the rest of your debts discharged.
Timing as a Factor
The vast majority of people filing bankruptcy do so because they need the protection and relief that can only be granted by the bankruptcy court. That’s why in the vast majority of cases objections like this are not an issue.
But, since banks can’t really read their customers minds, they rely on the information they have in front of them. It’s fairly common for a credit card company to review a customer’s transactions for the 3 months (or more) right before the filing date. That’s why it’s important to stop using your credit cards once you’ve decided to move forward with a bankruptcy filing.
What do creditors look for?
In addition to reviewing accounts for how often someone used their credit card before filing bankruptcy, creditors look for large purchases and cash advances in the 3 months leading up to the filing.
Large purchases and cash advances
The reason creditors pay special attention to large purchases or cash advances is the special provisions in the bankruptcy law with respect to these transactions.
If you purchased a luxury item in the 90 days before your bankruptcy case is filed, it will be on you to convince the court that you are entitled to discharge the debt anyway. Normally, that burden falls on the creditor.
How do I defend myself?
The first thing to remember is that as long as you didn’t have any cash advances or large purchases of luxury items in the 3 months before the filing date, the bank has to convince the judge that you did this on purpose. You’ll get a chance to explain to the court why you were using your credit card.
What happens if I win?
If you win, the debt to the bank will be discharged along with your other unsecured debts. Additionally, you can ask the court to order the creditor to pay your attorney fees.
What happens if I lose?
If you lose, the debt you owe to this particular creditor will not be affected when your discharge order is entered. At that point, the creditor can start contacting you to collect on the debt, or pursue legal action against you.
Even if you’ve already filed your case without the help of a lawyer, it’s a good idea to talk to a lawyer if you are served with a summons and complaint by one of your creditors. If the creditor wins, your fresh start will be clouded by the fact that this creditor may still get a judgment against you and garnish your wages. If you have to file your Chapter 7 bankruptcy quickly, and you think that this may be an issue in your case just based on time, schedule an appointment with a bankruptcy lawyer in your area. Tell them about your specific concern and get a recommendation for the best course forward.