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Bankruptcy Courts Cannot Deny Discharge On A Whim

Posted By admin || 26-Jul-2011

Bankruptcy Courts Cannot Deny Discharge On A Whim

One of the biggest fears that debtors have is that they will be denied a bankruptcy discharge. But in most cases this fear isn't based on reality; but on a misunderstanding of how bankruptcy law actually works.  Bankruptcy courts do not have the right to just randomly deny a debtor a discharge. Denial of discharge is governed by a strict set of rules which bankruptcy trustees and judges must follow.  These bankruptcy discharge rules are in place to protect the rights of debtors and to make clear on what grounds a debtor can be denied a bankruptcy discharge. Let's take a look at the rules.

Pursuant to section 727(a), certain conduct results in denial of a discharge in bankruptcy. Section 727, in relevant part, provides:

(a) The court shall grant the debtor a discharge, unless-

(1) the debtor is not an individual;

(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed-

(A) property of the debtor, within one year before the date of the filing of the petition; or

(B) property of the estate, after the date of the filing of the petition;

(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case;

(4) the debtor knowingly and fraudulently, in or in connection with the case-

(A) made a false oath or account;

(B) presented or used a false claim;

(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or

(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor's property or financial affairs;

(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities;

(6) the debtor has refused, in the case-

(A) to obey any lawful order of the court, other than an order to respond to a material question or to testify;

(B) on the ground of privilege against self-incrimination, to respond to a material question approved by the court or to testify, after the debtor has been granted immunity with respect to the matter concerning which such privilege was invoked; or

(C) on a ground other than the properly invoked privilege against self-incrimination, to respond to a material question approved by the court or to testify;

(7) the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act, concerning an insider;

It's important to note the wording "the court SHALL grant a discharge unless...." makes it clear that it is intended that every debtor receive a discharge as long as they have filed bankruptcy in good faith and have not violated the rights of their creditors or attempted to manipulate the process. That's a pretty fair process. If you read over the list carefully, you will notice that truthfulness and transparency is the foundation of receiving a bankruptcy discharge. As long as the debtor honestly discloses assets, avoids untruthful statements and does not incur or avoid debt fraudulently (such as charging up credit cards with no intention to pay) they will receive their bankruptcy discharge. It's also important to note that if a creditor accuses the debtor of violating the rules it is up to them to prove their claim, not the debtor.

(source: Leagle.com )

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