In any bankruptcy, the goal of a debtor is to have a judge issue an order of discharge. The discharge order means that you are relieved of responsibility for the debts included in the bankruptcy, effectively terminating the creditors' rights to pursue further collection. Some bankruptcies are contested, which can impact the discharge.
Contested Bankruptcy Defined
A contested bankruptcy is one in which one or more of the creditors involved in the case dispute your right to a discharge. A contested bankruptcy does not mean the debtor eventually will not get the discharge, but it can take longer to get if a creditor disputes your case.
Reasons for Contest
Generally, creditors contest your right to a discharge when they suspect you have acted fraudulently or dishonestly in regard to the debt. For instance, they may contest the discharge if they discover you hid assets. Sometimes debts that arise in a divorce also are grounds for contested bankruptcy when one spouse would experience financial hardship through the discharge.
In most cases, a creditor has 60 days to file a motion to contest. The 60 days start based on the date of the first meeting of creditors, better known as the bankruptcy hearing or 341 hearing. If a creditor does not file within this time period, the court assumes that the creditors do not intend to dispute the discharge.
Why Contests Happen
Creditors do not contest a bankruptcy discharge simply because they want debtors to pay what they owe, although creditors do want debtors to meet their obligations—most creditors have basic insurance that protects them against losses. They primarily contest bankruptcy because doing so protects the legitimacy of the bankruptcy process, weeding out debtors who otherwise would abuse the system.
Creditors must show evidence that supports the contest. For instance, they may have to show records that indicate ownership of accounts the debtor didn't disclose. In requiring creditors to provide evidence, courts offer debtors some protection of their discharge rights. Additionally, any time a creditor enters evidence toward a contest, you have the right to defend yourself against the evidence.
Sometimes contests happen in bankruptcy even when you have done nothing wrong. The best way to prevent this from happening is to provide your bankruptcy attorney and judge with as much evidence as possible right from the beginning of the case. This makes it much less likely that a creditor will have anything new to add to the bankruptcy proceedings. If you feel there is an item that might lead to contest, be forthcoming and explain the circumstances surrounding that item so it doesn't become a contest issue later. Your bankruptcy attorney should be able to tell you if the item is sufficient enough to warrant a dispute.