How to Object to a Bankruptcy

Bankruptcy can be a welcome relief to an entity or individual burdened with a lot of debt. Bankruptcy can be a nightmare, however, if you have loaned money to a person or entity who files. You may feel that it's unfair that the debtor gets out of repaying you by filing papers with the court, and you may want to object to the bankruptcy. Creditors can object under certain circumstances to their debt being discharged or even to the bankruptcy itself. However, the fact that the debtor is not repaying you is not a sufficient reason.

Instructions

1. Attend the 341 Meeting of Creditors. Section 341 of the Bankruptcy Code provides that each debtor must attend a meeting of creditors, often called the 341 Meeting, at which the bankruptcy trustee and any creditor may question the debtor about his finances. The debtor must answer your questions under oath and under penalty of perjury. The information you obtain at the 341 Meeting will help you figure out if you have cause to object to discharge.

2. Determine if you have grounds to object under Section 523 of the Bankruptcy Code. Section 523 lists the different ways you can object to the discharge of your particular debt. For example, if the debtor borrowed money from you knowing he was going to file bankruptcy, and did file bankruptcy 90 days or less after borrowing from you, you can object to that debt being discharged. If you prevail, the bankruptcy will continue, but the debtor will still have to repay you. To object to discharge under Section 523, you must file an adversary proceeding. An adversary proceeding is a lawsuit that you file within the bankruptcy. You must draft a complaint setting forth which sub-section of Section 523 you are alleging the debtor has violated.

3. Determine if you have grounds to object under Section 707 of the Bankruptcy Code, if the debtor has filed a Chapter 7. Section 707 allows an interested party to object to a Chapter 7 case and allege that the case is an abuse of Chapter 7. You must show that the debtor is understating his income or inflating his expenses. You can file a motion with the court objecting to a Chapter 7 bankruptcy and request that the case either be dismissed or converted to a Chapter 13 or Chapter 11. The court will grant your motion if you show that the case is an abuse of Chapter 7. The fact that he filed a Chapter 7 and does not intend to repay you is not sufficient. The U.S. Trustee's Office in the U.S. Department of Justice reviews each Chapter 7 carefully and will usually file such a motion if it is warranted; creditors do not often file motions under this section.

Tips & Warnings

• Hire a local bankruptcy attorney. He can help you determine if you have the grounds to object, and if you do, he can help you draft the appropriate documents. The Bankruptcy Code can be difficult to understand, so you would be well served to get experienced assistance.

• Litigation can be costly. Consider whether you would spend more on a lawsuit than you would lose if the debt was discharged. If the debtor owes you $1,000 and the cost to litigate would be $3,000, the result may not be worth the cost.

• Do not file a lawsuit or motion if you don't have the grounds to object. Judges get very angry when presented with frivolous pleadings and may order that you pay the debtor's costs and fees, or even punish you with monetary sanctions.

References

• Cornell University Law School: U.S. Code, Title 11, Section 341
• Cornell University Law School: U.S. Code, Title 11, Section 523
• Cornell University Law School: Federal Rules of Bankruptcy Procedure, Rule 7001
• U.S. Courts: Bankruptcy Basics - Discharge in Bankruptcy
• Cornell University Law School: U.S. Code, Title 11, Section 707