Most debts ARE written off in bankruptcy. Most creditors or collectors who try to persuade you to pay a debt on the threat that it can’t be written off in bankruptcy are likely either ignorant or dishonest.
This blog is not about secured debts—those with collateral like a mortgage or vehicle loan. It’s not about the relatively short list of special debts which are not written off regardless whether the creditor complains or not—child and spousal support, most student loans, many taxes. Instead this is about regular debts that would be written off unless the creditor objected.
A creditor can’t just object because it just thinks you should have to pay the debt. For a creditor to have a legal leg to stand on to stop its debt from being written off, it has to accuse you of engaging in a very specific set of bad actions. So these objections are quite rare.
The main reason these creditor objections are rare is because most likely you engage in the bad behavior that it would take to stop the debt from being written off. Most (but not all) creditors are practical enough that they don’t want to throw good money after bad—waste a bunch on attorney fees, filing fees, and other costs—if they don’t have the required facts to win their case.
A second reason these objections are rare is that if a creditor objects and the court decides that it had no solid legal reason to object, that creditor will not only have to pay its own costs, it may be ordered to pay yours as well, including potentially your attorney fees. Creditors aren’t in business to throw money down the drain.
Valid Grounds for Creditor Objections
So what kind of bad behavior by you could be successfully challenged by the creditor? That behavior has to be of the kind specified on a list that is in Section 523 of the Bankruptcy Code, the subsections (a)(2), (a)(4), and (a)(6) for our purposes here.
Broadly speaking, you must have either intended to defraud the creditor, abused a legally trusted role (such as the executor of a will), embezzled or stole, or injured someone or their property intentionally and maliciously.
As you can see, these are all quite seriously bad kinds of behavior, and as we said above that is why these challenges are relatively rare. But be careful because some more ordinary kinds of behavior can be included. For example, bouncing a series of checks can, under some circumstances, be considered either intentional or so reckless as to be essentially intentional. Passing a bad check can be considered fraudulent if you acted like a check was good but you either knew or definitely should have known that there wasn’t enough money in your account to cover the check. Similarly, using a credit card for a purchase or cash advance when you’ve already decided to file bankruptcy and have no intention of paying the debt is likely fraudulent.
Creditors Have a Very Short Time to Object
When you come in to see us, tell us if you were told by a creditor’s representative or collection agent that a debt can’t be written off in bankruptcy, or that they will object if you file bankruptcy. We will likely be able to tell if they were just bluffing.
Even if there might be some basis for an objection, often creditors still don’t pursue it for the financial reasons we mentioned above. Also, bankruptcy law has a “presumption” that your debts will be discharged, so the creditor has the burden of showing why a debt should not be written off. If the creditor does not prove its case, you win and the debt is gone.
A very important practicality is that you will not have to wait around very long to find out if the creditor is going to object. All creditors have a very firm deadline to fight the debt write-off or forever lose the opportunity to do so. That deadline is generally 60 days after your “meeting of creditors” (the one with the Chapter 7 trustee about a month after your case is filed).
Although we can usually tell if a creditor’s threats have any legal merit, we will not know for sure until after the deadline passes. Creditors are not always sensible, especially those who have a personal connection to you such as an ex-spouse or ex-business partner. Tell us if you know of anybody who has an axe to grind with you, even if they have not made any specific threats about how they’ll react to you filing bankruptcy. That way we can assess the seriousness of the risk, and perhaps even put your Chapter 7 together to better defend against an objection. And then hopefully we will all breathe a sigh of relief when the deadline passes without any objections being raised!