Some debts will be discharged in a chapter 7 bankruptcy case UNLESS the creditor files a complaint and obtains a court order that the debtor will remain responsible for the debt after the case is over.
The debts that are not dischargable if the creditor successfully challenges discharge are typically:
1. Debts that arise as a result of a fraudulent action. This includes:
a. Debts that are the result of an intentionally fraudulent act in which the creditor relied on the deceit in it’s extension of credit. Examples:
– Debtor obtained the loan and promised to pay back when had no intention to do so (this is common i.e. borrowing money against a line of credit or credit card when the debtor knows they are insolvent and unable to pay and/or is going to file for bankruptcy)
– Debtor borrowed an item and used it as collateral for a loan – Debtor wrote a check for an item, stopped payment on the check and kept the item – Debtor wrote a check when funds in the account were insufficient then promised the seller the check was good
b. Recent credit card charges that were used to buy luxury items.
– The law presumes…that a debt is fraudulent if it was more than 550.00 from any particular creditor for a luxury good or service within 90 days prior to filing the bankruptcy
c. Debts incurred based on a false written document about financial condition. Requirements:
– The statement must be in writing obviously.
– It must have been “material” i.e. a very important factor in the creditors decision to extend
credit. (overstatement of income is a common material false statement)
– The false statement must relate to financial condition – There must have been an intent to deceive the creditor – The creditor must have reasonably relied on the statement Continue reading