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What is an objection to discharge by creditor?

Creditor objections to bankruptcy discharge of debts often focused on fraud

One fear of an individual facing bankruptcy is that creditors will object to the petition filed in U.S. Bankruptcy Court and ask the court to refuse to discharge the debtor's bills.

While many attorneys advise their clients that creditors often won't go to the expense or trouble of disputing debts filed in Chapter 7 cases, the most common form of personal bankruptcy, there are times when a creditor will take action.

On his website, Detroit attorney Walter Metzen states that the most likely scenario for a creditor to object to a discharge revolves around suspected fraud, including embezzlement of assets or malicious injury to property involved in the debt.

"Typically, a creditor has about 90 days after learning of the bankruptcy case to file the complaint," according to Metzen. "With such a short time period, a creditor must act promptly to learn if grounds exist to file an objection to discharge."

Specifically, the grounds for a creditor's objection are based on whether the debtor failed to produce financial records, couldn't explain a loss of assets, made false statements in the petition, didn't obey a court order regarding the bankruptcy or fraudulently transferred, concealed or destroyed property that should have been included in the individual's estate.

When creditors file a motion for relief from stay, they are asking the court to lift the automatic stay that prevents them from collecting on unpaid bills. If the court grants them relief, they may continue with whatever course of action they were pursuing before the bankruptcy was filed.

"If they were in the process of foreclosure of a home or repossession of a vehicle, [a] bankruptcy froze that process. The motion for relief from stay simply allows them to pick up where they left off," according to the BankruptcyLawNetwork.com.

If a creditor does challenge the discharge of a debt, the individual may be able to negotiate a partial payment plan for that particular debt or to convert the case to a Chapter 13 bankruptcy.

In Chapter 13 the debtor agrees to a court-ordered repayment plan over several years, but creditors may object if the debtor has trouble making payments, the case is dismissed and a pattern of new cases emerges later. "In most instances of repetitive, abusive Chapter 13 filings, the court will take action to stop the serial petitions by prohibiting another filing for 180 days," Metzen states on his website.

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