In bankruptcy, certain specified types of debts are forgiven or “discharged”, releasing the debtor from personal liability for those debts. Debt discharges are permanent, and when granted, the debtor is no longer required to repay that debt.

Though this “clean slate” helps the debtor recover from bankruptcy, it is of little consolation to the creditor. There are situations, however, in which a creditor may successfully object to a bankruptcy debt discharge.

Which Debts Cannot Be Discharged in Bankruptcy?

Debts that may not be discharged differ depending under which chapter of U.S. Bankruptcy Code the bankruptcy was filed. There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13.

Generally, however, these types of debts cannot be discharged in bankruptcy:

• Debts incurred as result of false pretenses, a false representation, or actual fraud
• Debts incurred because of fraud or misappropriation while acting in a fiduciary capacity
• Debts incurred from embezzlement or larceny
• Debts result from willful and malicious acts by the debtor to another entity or to the property of another entity
• Child support and alimony
• Fines, penalties, and restitution for breaking the law
• Certain tax debts
• Debts arising from death or injury as a result of intoxicated driving
• Secured debt or liens – a creditor can simply reclaim the property used as security, although any deficiency balance will likely be discharged

It is these exceptions that form the basis of objections to the discharge of a debt.

How Can I Object to the Discharge of a Debt?

There are two primary types of complaints that creditors and/or bankruptcy trustees may bring against debtors to object to the discharge of a debt. These are defined in Section 523 and Section 727 of the U.S. Bankruptcy Code – the two sections of the code that define when a debt may or may not be discharged:

• Section 523 of the U.S. Bankruptcy Code sets forth certain requirements that a debtor must meet to have certain debts discharged. You can file a lawsuit in the bankruptcy court asserting that your debt does not meet those requirements or falls under an exception for discharge and should remain the debtor’s obligation. Section 523 complaints focus on specific debts to a single creditor.
• A Section 727 complaint may be filed if the creditor or bankruptcy trustee believes that the debtor has not met the requirements for a discharge under Section 727. Section 727 complaints address the discharge of a debtor's entire debt obligations. If successful, all creditors involved in the bankruptcy case may be able to prevent all of the debtor’s debts from being discharged.

Examples of Section 523 Exceptions:

You can challenge the discharge of a specific debts to a single creditor under Section 523 of U.S. Bankruptcy Code if one of these exceptions exists:

• Credit was obtained under false pretenses, a false representation, or actual fraud;
• Credit was obtained using a materially false statement made with the intent to deceive, such as a statement about the debtor’s financial condition;
• Consumer debts were incurred for luxury items within 90 days of filing for bankruptcy relief;
• Credit was obtained via fraud while acting in a fiduciary capacity, embezzlement, or larceny; or
• Other exceptions are related to domestic support obligations, government fines, taxes, etc.

Examples of Section 727 Exceptions:

You can challenge the discharge of a debt under Section 727 of U.S. Bankruptcy Code if one of these circumstances apply:

• When a debtor transferred, removed, or concealed property within one year before or after the date of the bankruptcy filing;
• When a debtor concealed, falsified, or failed to preserve important information, including records, about their true financial situation;
• When a debtor made a false account or presented a false claim in connection with the bankruptcy case;
• When a debtor withheld important information, documents, or records regarding their financial situation from an officer of the estate; or
• When a debtor fails to obey a legal order issued by the court, etc.

When to File a Section 727 or Section 523 Complaint

Creditors and trustees need to act quickly with respect to these types of complaints. Section 523 and Section 727 complaints objecting to discharge must be filed no later than 60 days after the first set date for the meeting of creditors. Failure to file a complaint within this window can result in the loss of your legal rights and remedies that would otherwise have been available to you.

Speak with your attorney to find out which type of complaint is right for your case. Section 523 is more often recommended to protect your individual creditor rights, but there are circumstances in which a Section 727 complaint may be the best option.