When the Creditor Challenges the Bankruptcy Discharge
Sometimes when a debtor attempts to discharge certain debts in bankruptcy, the creditor will challenge the bankruptcy discharge. The creditor is allowed to file what's called an Adversary Proceeding so that they can plead the case of why the debtor should not be allowed to discharge a certain debt in bankruptcy. A creditor is only allowed to file an Adversary Proceeding within 60 days of the meeting of the creditors unless they have been granted an extension on the deadline by the bankruptcy court. One of the reasons some creditors file an adversary proceeding is because the debtor made some type of material misstatement that caused the creditor to grant credit in the first place.
For example, if a debtor said that they earned $50,000 a year when they only earned $10,000 a year and the creditor relied on that income statement when determining creditworthiness then the bankruptcy court may deny the debtor a discharge on that debt. However, if the creditor routinely grants the same amount of credit to debtors earning only $10,000 then the bankruptcy court might not deny the discharge based on that misstatement.
Another example of why a creditor might file an adversary proceeding is if the debtor accumulated the debt with no intentions of ever repaying it. How do you prove intent? There was one case where a habitual gambler filed bankruptcy on her gambling debts, the creditor challenged he discharge saying that the debtor knew she was insolvent but continued to gamble and accumulate more debt. While the bankruptcy court ruled that they would grant the debtor a discharge, it was only because her ongoing payments on the debt proved that she had some intention of repaying it. On the other hand, if the debtor had not made any payments on the debt she might have been denied a bankruptcy discharge.
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