If you’re wondering if your bankruptcy petition can be denied, the short answer is yes, but continue reading to learn which factors can cause the denial.
First a Background on the Chapters of Bankruptcy
In most cases, if you’re considering personal bankruptcy, you can file either a Chapter 7 or a Chapter 13 bankruptcy.
The main initial issue in a bankruptcy cases is whether or not you initially qualify for a Chapter 7.
If you have too much income or you have too many assets, you won’t be able to file a chapter 7 and you will be forced to file a Chapter 13 bankruptcy.
Asset Exemption
A second issue for many people in debt and who are forced to file a Chapter 7 bankruptcy is what assets they can exempt. An exemption is an asset that you can save during bankruptcy and not have to sell (liquidate).
There are personal exemptions that you can use to save some of your assets and some of the funds in your bank account.
Many debts such as educational loans and secured interests (such as mortgages) can’t be discharged.
The remedy is usually to pay out the debt in bankruptcy over a 3 to 5-year period within the framework of a chapter 13.
In all case, you still must be honest in all your dealings with the bankruptcy court, and with the bankruptcy trustee.
When Bankruptcy Discharges Can Be Denied
If you’re not careful, or honest, you can be denied a bankruptcy discharge in the following several scenarios.
If You Are Found to Be Dishonest
If you are found to be dishonest, ignoring court orders, or you have ignored any filing requirements, you may be denied the right to proceed in bankruptcy.
You may be denied the right to have your debts discharged.
You may then be forced to work with their creditors who may seek to enter judgments against you, and constantly call you, and seek to seize your possessions.
Some actions may constitute complete denials of your discharge.
Other actions may mean you have to complete the requirements, or refile and start your petition all over again.
Fraud can be used to deny a discharge
Bankruptcy may be denied for the following cases involving fraud:
- If you try to give away all your assets within one year of the filing date.
- If you attempt to prefer some creditors over other creditors by paying off some known debts while ignoring others.
- It’s better to pay each creditor the same percentage. Other time-limits may apply.
- If you try to destroy any property, or intentionally reduce the value of your home, your car, or your other valuable possessions.
- If you try to move your assets to another location so creditors can’t find them.
In short, you cannot hide any of your assets.
How Does The Court Determine Fraud?
In some of these cases, the trustee or the creditors need to show that there was a specific intent on your part to transfer, destroy, or hide any of your assets.
If assets are transferred or destroyed due to unforeseeable circumstances such as a flood or a fire – normally, those unforeseeable events won’t be grounds for denying you a discharge.
The point is, you should and need to disclose all your assets to your lawyer.
You should disclose all your assets on the forms that you must file with the bankruptcy court – for both Chapter 7 and for Chapter 13 bankruptcy filings.
If your intent is suspicious, there will most likely be a court hearing to determine if you specifically intended to transfer, destroy, or hide any of your assets.
Don’t Conceal Your Income Information From The Court
You also cannot hide information about your financial condition.
This normally means that you cannot hide information about your income or your ability to earn an income.
You Need to Disclose All Your Income Sources
You must disclose if you have any type of business that generates income.
If you have a business, you need to be honest in disclosing how much you earn from the business.
If you have a second job you need to disclose that job too.
If you are being paid in cash to avoid tax payments, you need to ensure that you disclose those amounts.
If you have gambling winnings, you need to disclose those amounts.
In general, you are highly advised to be honest and disclose the sources of all your income.
The court will then review which income (such as Social Security income) may be protected from seizure by the trustee in bankruptcy.
Intentionally Misrepresenting the Value of Your Assets
If you appear to be intentionally misrepresenting the value of your assets, or the amount of your debts, or the amount of your income, a trustee or creditor will likely contest your discharge until all the information is presented to the court.
A failure to submit all information and respond truthfully can result in a denial of your bankruptcy discharge.
Giving gifts to Friends, Families, or Others
You cannot avoid the seizure of your assets by giving away your car, your jewelry, or other possessions to people you care for, or simply to avoid asset seizure by the trustee or creditors.
The bankruptcy court has the right to deny a Chapter 7 or a Chapter 13 bankruptcy filing if they discover that you have given your property away.
Alternatively, you may be held accountable in the bankruptcy court (and to the creditors) for the value of the items that you gifted to others.
Denial Because of Refusing to Comply With Court Orders
In both Chapter 7 and Chapter 13 cases, you must file forms that detail your financial condition.
In both of these cases, you will be required to attend a creditors’ meeting which is held by the trustee on behalf of your creditors. This meeting is called the 341 meeting of the creditors.
The 341 meeting is explained as follows (source)
The “341(a) meeting” is sometimes called the “meeting of creditors” and gets its name from the Section of Title 11 of the United States Code where the requirements for the first meeting of creditors and equity security holders are found. It is also referred to as the “First Meeting of Creditors” or just “First Meeting”. The debtor (both spouses in a joint case) must be present at the meeting to be questioned under oath by the trustee and by creditors. Creditors are welcome to attend, but are not required to do so. The meeting may be continued and concluded at a later date without further notice.
If there are challenges to your bankruptcy, the bankruptcy court may set up a court hearing.
Requirements For a Successful Bankruptcy
You are required to accurately complete all your paperwork.
You are required to attend the creditor’s meeting.
If you can’t make the meeting due to ill health or some other reason, you should notify your lawyer right away, and he or she will arrange for a new date.
You are required to appear at hearings or face the prospect that you will lose whatever challenge the trustee or a creditor made.
If the challenge is a request for a dismissal, the judge may grant the request for the dismissal
Completing the Initial Instructional Course
In both Chapter 7 and Chapter 13 cases, you are required to take instructional courses before you file for bankruptcy.
There are two courses that you must take.
The first is a credit counseling course which explains non-bankruptcy filing options.
The second course is a financial management course that you must complete during the term of the bankruptcy.
On average the course costs less than $100.
The courses can often be taken online or over the phone.
In-person courses are also available.
Your lawyer will explain to you when and where these courses are offered.
The Take Home
The best course of action in all bankruptcies is to honestly review your financial situation and your debtor’s rights with an experienced bankruptcy lawyer.
If problems arise during the proceedings, or if things are not clear during the course of the bankruptcy, it is best to let your lawyer know as soon as possible.
Be First to Comment