I know this topic has been a long time in coming...so here goes...time to address Creditor Objections.
Background
The BK code declares that certain types of debts are non-dischargeable and you can find that list in section 523(a) of the BK Code. However, depending on the type of debt and the way the exception is worded, sometimes the burden falls on the "Debtor" to prove a certain debt can be discharged (i.e. student loans), and other times the burden falls on the "Creditor" to prove that their debt is non-dischargeable in BK.
When we are discussing creditor objections, we are talking about unsecured creditors, typically credit cards, etc.
Brief overview of process.
If a creditor determines that an objection is warranted, the creditor will file an Objection to Discharge of THEIR debt. This filing begins what is known as an adversarial proceeding in BK court. Think of an Adversarial Proceeding as a mini-law suit that occurs within your Bankruptcy. The debtor then must file a response, evidence is gathered and supplied to both sides, and a hearing is held in front of the BK Judge who decides the case. (more on this process in Part II).
Important note, An Objection to Discharge is between the debtor and the creditor...the BK Trustee and US Trustee ARE NOT involved in any way.
Why might a creditor object?
As stated earlier, the exceptions to discharge are listed in Section 523(a) of the BK code. Specifically, your typical unsecured creditor would object using Section 523(a)(2), but that section contains several different types of non-dischcargeable debt.
1. $500 owing to a single creditor for the purchase of "luxury" goods within 90 days prior to filing BK.
2. $750 owing to a single creditor for a cash advance (i.e. balance transfers are cash advances) obtained within 70 days prior to filing BK.
[Note, those amounts change periodically, so the numbers may not be up to date]
The above two rules are known as the per-se rules. The creditor need not prove intent (i.e. fraud), only that the transactions meet the criteria stated. If you have been reading this forum at all, these rules are known and the infamous 70/90 day rules.
3. For money obtained under false pretenses, false representation, or actual fraud. Basically, what that means is that you (1) made the charges/cash advances knowing you were going to file BK (2) made the charges/cash advances while insolvent and/or could not have had a reasonable expectation that you could pay back the debt.
This post primarily addresses the objection for number 3 above.
That is all well and good, how about an example?
Ok...Debtor lost their job in October, already has $75K in unsecured debt, is upside down in his house and cars, but goes out and charges $8K on Christmas for his family and friends in December, then files BK in April. The creditor would likely object because the debtor had no income, no assets, to which he could reasonably expect to make the payments on that debt.
Debtor is upside down in their house and cars, has $50,000 in unsecured debt, and had their hours cut at work, but in an effort to save money uses one of those convenience checks to try and save money on interest and transfers $15,000 of that debt to another credit card. Then files BK 4 months later. That debt is probably objectionable, the debtor had a decrease in income, and no assets (insolvent) and made a cash advance. (I bet this sounds familiar
)
However, these are just hypothetical examples, a creditors decision to object is quite complicated.
What if I have charges on a credit card, and some may be objectionable and some are clearly not?
The creditor can only object to discharge to those charges that meet the criteria for objectionability. Meaning that, if you have a Chase card that you have been using for years that has a $12,000, but you do a balance transfer to your Chase card of $6,000 from your Citi card, and then file BK. Chase could ONLY object to the $6,000 balance transfer, not the entire pre-existing balance.
Ok, I understand now, but how likely is an objection?
The answer is "it depends", but there are some rules of thumb to help.
(a) If a debt is more than six months old, the odds of a creditor objection decrease substantially. The more distance in time between the time you made the objectionable transaction and file BK the better because a creditor will have a harder time proving "intent", i.e that you should have reasonably believed you could not pay back the debt at the time you took the money.
(b) Generally, the amount in question is usually over $2,000, but more typically over $4,000. The reason being, most attorney's who represent creditors in this capacity do so on contingency...20% for a reaffirmation, 25% if an objection actually gets filed. Thus, the amount in question must be worth the attorney's time and effort.
A factor that is at the bottom of the list is your ability to repay. Granted, you are filing chapter 7 for a reason, but a debt that is declared non-dischargeable has value outside of your ability to repay.
The refreshing thing to know is that objections are actually quite rare and are neither specious or random. Most debtors at least speak to an attorney or do some amount of homework to insulate themselves from possible objections, i.e. waiting to file BK, stop using credit etc. Thus, for the most part, when a creditor objection is filed, the debtor that it is filed against usually did do something under-handed.
What can I do to minimize the chance of an objection
The answer, again, depends on the specific circumstances, but here are some general tips if you think you may have made some charges that could be objected too.
1. Wait to file BK, at a minimum wait 3 months from the date of the charge (get outside the 90 day), but if the charge was particularly large, wait 6 months.
2. During that waiting time, make at least the minimum payments on THAT card.
3. Stop using that credit card.
If the creditor is successful having a debt declared non-dischargeable, what does that mean?
Basically, it means that you owe that debt forever until it is paid, with all accumulating interest and you can NEVER discharge that debt, not even in a future BK.
Does a creditor's objection effect any other aspect of my BK?
There is good news here: the answer is no! Even if a creditor files an Objection to Discharge of their debt, the rest of your BK will proceed normally (assuming there are no other issues ). You will recieve your discharge in BK on time, and often times, that discharge will be received before the hearing the objection. [I know...that seems odd, but don't make the mistake of thinking that the objection is somehow void when you receive your discharge, the objection to discharge is a separate case with its own case number]
Practical Advice
Creditors tend to only object in the "obvious" cases. As a result, most debtors need not worry about a creditor objection. If you do some homework, or consult with a good attorney and are open and honest with your attorney, most debtors can plan properly to avoid objections. More than anything else, TIME is the debtor friend to avoiding objections. If you made some questionable transactions, WAIT to file BK, wait at least 6 months, but the longer the better. Thus, although creditor objections are possible, its not an issue the average debtor need lose any sleep over.
Go on to Part II for further discussion of what happens when a creditor decides to object.
Note, this post is a work in progress, please post any suggestions or questions you would like to see addressed
Background
The BK code declares that certain types of debts are non-dischargeable and you can find that list in section 523(a) of the BK Code. However, depending on the type of debt and the way the exception is worded, sometimes the burden falls on the "Debtor" to prove a certain debt can be discharged (i.e. student loans), and other times the burden falls on the "Creditor" to prove that their debt is non-dischargeable in BK.
When we are discussing creditor objections, we are talking about unsecured creditors, typically credit cards, etc.
Brief overview of process.
If a creditor determines that an objection is warranted, the creditor will file an Objection to Discharge of THEIR debt. This filing begins what is known as an adversarial proceeding in BK court. Think of an Adversarial Proceeding as a mini-law suit that occurs within your Bankruptcy. The debtor then must file a response, evidence is gathered and supplied to both sides, and a hearing is held in front of the BK Judge who decides the case. (more on this process in Part II).
Important note, An Objection to Discharge is between the debtor and the creditor...the BK Trustee and US Trustee ARE NOT involved in any way.
Why might a creditor object?
As stated earlier, the exceptions to discharge are listed in Section 523(a) of the BK code. Specifically, your typical unsecured creditor would object using Section 523(a)(2), but that section contains several different types of non-dischcargeable debt.
1. $500 owing to a single creditor for the purchase of "luxury" goods within 90 days prior to filing BK.
2. $750 owing to a single creditor for a cash advance (i.e. balance transfers are cash advances) obtained within 70 days prior to filing BK.
[Note, those amounts change periodically, so the numbers may not be up to date]
The above two rules are known as the per-se rules. The creditor need not prove intent (i.e. fraud), only that the transactions meet the criteria stated. If you have been reading this forum at all, these rules are known and the infamous 70/90 day rules.
3. For money obtained under false pretenses, false representation, or actual fraud. Basically, what that means is that you (1) made the charges/cash advances knowing you were going to file BK (2) made the charges/cash advances while insolvent and/or could not have had a reasonable expectation that you could pay back the debt.
This post primarily addresses the objection for number 3 above.
That is all well and good, how about an example?
Ok...Debtor lost their job in October, already has $75K in unsecured debt, is upside down in his house and cars, but goes out and charges $8K on Christmas for his family and friends in December, then files BK in April. The creditor would likely object because the debtor had no income, no assets, to which he could reasonably expect to make the payments on that debt.
Debtor is upside down in their house and cars, has $50,000 in unsecured debt, and had their hours cut at work, but in an effort to save money uses one of those convenience checks to try and save money on interest and transfers $15,000 of that debt to another credit card. Then files BK 4 months later. That debt is probably objectionable, the debtor had a decrease in income, and no assets (insolvent) and made a cash advance. (I bet this sounds familiar
)However, these are just hypothetical examples, a creditors decision to object is quite complicated.
What if I have charges on a credit card, and some may be objectionable and some are clearly not?
The creditor can only object to discharge to those charges that meet the criteria for objectionability. Meaning that, if you have a Chase card that you have been using for years that has a $12,000, but you do a balance transfer to your Chase card of $6,000 from your Citi card, and then file BK. Chase could ONLY object to the $6,000 balance transfer, not the entire pre-existing balance.
Ok, I understand now, but how likely is an objection?
The answer is "it depends", but there are some rules of thumb to help.
(a) If a debt is more than six months old, the odds of a creditor objection decrease substantially. The more distance in time between the time you made the objectionable transaction and file BK the better because a creditor will have a harder time proving "intent", i.e that you should have reasonably believed you could not pay back the debt at the time you took the money.
(b) Generally, the amount in question is usually over $2,000, but more typically over $4,000. The reason being, most attorney's who represent creditors in this capacity do so on contingency...20% for a reaffirmation, 25% if an objection actually gets filed. Thus, the amount in question must be worth the attorney's time and effort.
A factor that is at the bottom of the list is your ability to repay. Granted, you are filing chapter 7 for a reason, but a debt that is declared non-dischargeable has value outside of your ability to repay.
The refreshing thing to know is that objections are actually quite rare and are neither specious or random. Most debtors at least speak to an attorney or do some amount of homework to insulate themselves from possible objections, i.e. waiting to file BK, stop using credit etc. Thus, for the most part, when a creditor objection is filed, the debtor that it is filed against usually did do something under-handed.
What can I do to minimize the chance of an objection
The answer, again, depends on the specific circumstances, but here are some general tips if you think you may have made some charges that could be objected too.
1. Wait to file BK, at a minimum wait 3 months from the date of the charge (get outside the 90 day), but if the charge was particularly large, wait 6 months.
2. During that waiting time, make at least the minimum payments on THAT card.
3. Stop using that credit card.
If the creditor is successful having a debt declared non-dischargeable, what does that mean?
Basically, it means that you owe that debt forever until it is paid, with all accumulating interest and you can NEVER discharge that debt, not even in a future BK.
Does a creditor's objection effect any other aspect of my BK?
There is good news here: the answer is no! Even if a creditor files an Objection to Discharge of their debt, the rest of your BK will proceed normally (assuming there are no other issues
). You will recieve your discharge in BK on time, and often times, that discharge will be received before the hearing the objection. [I know...that seems odd, but don't make the mistake of thinking that the objection is somehow void when you receive your discharge, the objection to discharge is a separate case with its own case number]Practical Advice
Creditors tend to only object in the "obvious" cases. As a result, most debtors need not worry about a creditor objection. If you do some homework, or consult with a good attorney and are open and honest with your attorney, most debtors can plan properly to avoid objections. More than anything else, TIME is the debtor friend to avoiding objections. If you made some questionable transactions, WAIT to file BK, wait at least 6 months, but the longer the better. Thus, although creditor objections are possible, its not an issue the average debtor need lose any sleep over.
Go on to Part II for further discussion of what happens when a creditor decides to object.
Note, this post is a work in progress, please post any suggestions or questions you would like to see addressed
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