Bankruptcy in Brief
a service of the Moran Law Group
Some kinds of claims against an individual debtor survive the discharge without the creditor having to do anything to
protect the claim. Examples are child support, student loans, criminal
restitution and judgments arising from
Other kinds of claims survive the bankruptcy only
if the creditor takes action in the short time allowed.
A creditor whose claim against the debtor was
incurred by fraud, dishonesty or other forms of intentional "bad acts"
or which is a non support claims which arose in a divorce may
contest the discharge of his claim in a Chapter 7
bankruptcy by filing a timely nondischargeability suit and proving, to the
satisfaction of the court, that the elements for non dischargeability are met.
These adversary proceedings must be filed
within 60 days of the first meeting of creditors or the claim is discharged.
If you hold a pre bankruptcy judgment for fraud against
the debtor, that judgment may be conclusive in an action for non
dischargeability in the bankruptcy court. You still need to file the non
dischargeability action; you may not have to prove anything more than the existence
of your judgment.
When a divorce or separation agreement or
judgment creates a debt in favor of the former spouse, those non support obligations to
the former spouse may be excluded from the Chapter 7 bankruptcy discharge. 11
The creditor spouse
doesn't have to prove fraud or dishonesty; he or she must prove that discharge of the
debt creates a greater hardship on the creditor spouse than excluding the debt from
discharge would create for the debtor spouse.
These non support, marital debts are non
dischargeable only if the creditor/spouse files an adversary proceeding within 60 days of
the first meeting of creditors. (The rule for support debts is different: they
are non dischargeable without action on the part of the benefited party).
More on family issues in bankruptcy
Should I file a non dischargeability action?
Before spending time, money and emotional
energy in contesting the discharge of your claim in the debtor's bankruptcy, you need to
ask yourself some hard, real - world questions about why you might contest
What is the likelihood that the debtor will have assets or
income in the future from which your claim could be paid, if you were successful in
excepting the debt from discharge?
If the debtor is older, low skill or
discredited in his field of endeavor, or subject to other substantial non dischargeable
claims such as taxes, the chances of recovering money after the bankruptcy to pay
your non dischargeable claim are questionable.
What are the costs of litigating the nondischargeability
How do those estimated costs compare to the size of the debt you want to
collect? What is the risk that you won't prevail?
Did the dishonest or malicious act create the
debt or did it occur after you extended credit?
Generally, to prevail, you
must show that but for the dishonest act, the debt would not have arisen.
Lies about intent to repay the debt, made after the debt was incurred, usually won't
support a non dischargeability action,
Remember too that corporations don't get a discharge of their debts in
bankruptcy; the assets of the debtor corporation are simply liquidated to
pay creditors. So, the concept of "nondischargeability" is
meaningless in a corporate bankruptcy case.
The presumptions in non dischargeability actions generally
favor the discharge of the debt except perhaps in the case of debts arising from
divorce. Consider the costs vs. benefits before spending substantial time and
energy contesting the discharge of a particular debt.
Do I need to file an adversary proceeding to protect my claim?
Yes, if you claim that the debt arose by reason of the debtor's fraud or
Some debts are not dischargeable by their very
nature such as child support or spousal support. If you are owed support, you don't
have to do anything to prevent the discharge of the debt.
If your claim is a non
support claim arising in the divorce, you must file an adversary
preserve your claim. 11 U.S. C. 523(a)(15).
Non dischargeability and claims in the bankruptcy estate.
If there will be a distribution in the case,
whether your claim is non dischargeable or not, you must file a claim to share
in the distribution. Get the
of claim form and file it with the court within the time set in the notice.
For more information for creditors, see the following: