Filing bankruptcy results in a discharge of unsecured debt for most bankruptcy filers. However, sometimes a debtor’s bankruptcy discharge is denied by the court. In those rare cases, the debtor will be liable for all of their debts as if they never filed bankruptcy, and, under certain circumstances, the bankruptcy trustee may still liquidate nonexempt assets to repay priority creditors. Below are a few reasons why a court might deny your bankruptcy discharge:
If a debtor attempts to defraud the bankruptcy court, they will face a bankruptcy discharge denial. Bankruptcy fraud can include any attempt to hide, destroy, give away assets or even attempts to manipulate and deceive the bankruptcy court. The key here is that the debtor’s attempts to pull one over on the bankruptcy court are intentional and designed to manipulate the system. If a debtor is found guilty of attempting to defraud the bankruptcy court, they could not only have their discharge denied, they could have certain nonexempt assets liquidated and used to repay creditors.
If a debtor fails to provide required documents and information to the court, their bankruptcy discharge could be denied. A bankruptcy discharge could also be denied if the debtor purposefully destroys or alters information so that it can’t be used to determine the debtor’s financial status.
Making false statements on your bankruptcy petition, at your 341 meeting, to creditors, or to the court in general could result in denial of your bankruptcy discharge. For example, telling the bankruptcy court that you earn less than the median income in your area when in fact you’re a high income earning could result in a bankruptcy discharge denial. Even if you “get away with” lying and gain a bankruptcy discharge, if your lies are discovered, your case could be reopened and your discharge subsequently denied.
Illegally transferring or destroying assets before (or after) filing bankruptcy could result in a discharge denial. Illegal transfers could include gifting assets to friends or relatives or selling them below their market value right before filing bankruptcy. If it’s determined that you purposefully transferred these assets to keep them out of creditor hands, you could have your bankruptcy discharge denied. If you inadvertently transferred assets before filing bankruptcy, let your attorney know immediately.
To avoid having your bankruptcy discharge denied by the court, it’s important that you are honest and communicate any mistakes immediately to your attorney.