Contesting Dischargeability

Do I Need To File An Adversary
Proceeding To Protect My Claim?

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 drunk or impaired driving.

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 non-dischargeability 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, but you may not have to prove anything more than the existence of your judgment.

Debts arising in divorce: When a divorce or separation agreement of 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 U.S.C. 523(a)(15).

The creditor spouse doesn't have to prove fraud or dishonestly. He or she must prove that discharge of 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.

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 dischargeability. Consider:

  1. 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.
  2. What are the costs of litigating the non-dischargeability action? 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?
  3. 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 "non-dischargeability" 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.

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 proof of claim to share in the distribution. Get the proof of claim form and file with the court within the time set in the notice.

We encourage you to call 515-421-9068 or use our online contact form to schedule a free one-hour consultation with a lawyer who emphasizes on clear communication and cost-efficient solutions. We will review your situation and recommend an effective course of action.