Bankruptcy cases are rarely denied in Kentucky. Almost all cases that deny a debtor from filing bankruptcy are due to fraud or abuse of the system. However, it can happen by accident or, I should say, poor planning.
The bankruptcy petition must have complete and accurate information. It is the obligation of the bankruptcy attorney and the debtor to be truthful and complete in filing for bankruptcy. The bankruptcy court will punish fraud or abuse by dismissing a case and even ban a debtor from filing in the future.
This article will focus on the frequency of the denial of bankruptcy cases and the usual mistakes that are the main causes of rejection.
Unintentional Mistakes and Having a Discharge Denied
But you can also make a mistake in the bankruptcy process, and the bankruptcy code can require the bankruptcy court to dismiss your bankruptcy case. A bankruptcy attorney who fails to check can cause you to be disallowed debt relief. It doesn’t just happen over false statements.
Your Right to Dismiss a Chapter 13 Bankruptcy Petition
If you file a case as a Chapter 13, you almost always have the right to dismiss your case. However, if you file a Chapter 7 bankruptcy, the trustee must agree to the dismissal or not object to it.
The chapter 7 bankruptcy issues can also include gifts to others you made before filing. If they have discovered fraud or assets, your case will probably not be dismissed, and the discharge is often denied.
Good Faith and Repeat Filers
Some people will have a previous bankruptcy. If you make a mistake, you are often allowed to refile a bankruptcy petition in a new case. The preferred method for small errors, such as listing the wrong address, is to amend the petition.
But if you are filing for bankruptcy repeatedly, it is an abuse of the system. If you file a case and fail to make payments to the car or mortgage, they will file a motion to terminate the stay.
Dismissing Your Bankruptcy Case
You can dismiss your case after that so you can file a second case. But you do not get the protection of stopping a foreclosure sale until 180 days after the case is dismissed. Even then, you have to ask to extend the stay. The rule is 11 USC 109(g)
If you have two cases within the prior year, there is no protection the bankruptcy court can give you. If you previously filed multiple cases over and over, it becomes clear your bankruptcy case is just an abuse of the system to defraud. You can be banned for several years from filing for bankruptcy.
Intent to Defraud Creditors
Sometimes the intent to defraud creditors is obvious. When you charge on your credit immediately before filing for bankruptcy for luxury goods in one last grab, that debt becomes non-dischargeable.
Or I should say there is a presumption of fraud. That one debt is not discharged in bankruptcy. Not the entire bankruptcy. Even then, you only pay for the Rolex. Not the entire debt. The goal when you file bankruptcy is to give the deserving person a fresh start and debt relief. It is not one last grab or trip to the store.
The intent to defraud can come in many forms, including the destruction or failure to provide documents. There is a 12-factor test some courts use to determine when a recent charge was improper. If a creditor wants to contest your bankruptcy for this, they can file an adversary proceeding for fraud. If they do not win, the penalty is they pay the debtor’s attorney fees and costs.
Bankruptcy Fraud
Normally bankruptcy fraud is the common variety of lying in the schedules to hide assets or income. Debtors rarely do this, but it happens in 1-2% of the cases. Under stress, you may fail to include wages, profits, property, transfers of assets, payments, lawsuits, and child support obligations.
I have seen all of these being a reason for having a bankruptcy dismissed for fraud. Some people, such as an ex-spouse, creditor, business partner, or employee, often have the knowledge and a grudge.
If you transfer property for less than its value, a Chapter 7 bankruptcy trustee can return that property so he can sell it for the benefit of creditors. Fraudulent transfers and preferential transfers are often the cause of dismissal by the court system.
Getting the case filed with complete and accurate information means the debts are discharged, and the court allows you to keep assets. Transfer assets and you lose the right to exempt them because they don’t belong to you.
Bankruptcy Automatic Dismissal
If you fail to file the statement of social security number, bankruptcy schedules, or credit counseling certificate on time, the case will automatically be dismissed. There may be no fraudulent intent, but the bankruptcy court is required to dismiss the case. Often you can correct the error and have the case reinstated, but if you file without the credit counseling certificate, you will have to refile, and you lose the filing fee for the first case.
Bankruptcy Discharge Denial
The most common discipline the court uses is the denial of a discharge. If you need a temporary bankruptcy stay so you cure a foreclosure, you can make monthly payments into a Chapter 13. The same is true for student loan debt and taxes. You don’t need the discharge in all cases.
In the worst cases, the US Trustee will keep you in Chapter 7 so a home or other assets can be sold under court order as part of the bankruptcy estate. Not only does the bankruptcy court sell the property, but often, you lose a successful discharge
Failure to Take the Personal Financial Management Course
One of the common mistakes you can make is not to take the debtor education class at the end of the case. The case is dismissed without the discharge, which is the same as having your case dismissed. The case is over, and you still have the debts and the responsibility to pay creditors. You wasted your time and money.
You can reopen the case and then file the debtor education certificate. But you must pay another filing fee and attorney fees to file the motions first to reopen the case and second to grant a discharge. This can run about 600 dollars in 2022. People are advised several times to take the instructional course before the case closes.
Income and the Means Test
One way to commit fraud in bankruptcy is by filing a Chapter 7 bankruptcy when Chapter 13 should have been filed. The US Trustee will file a motion to dismiss a case when documents show the debtor could have filed a repayment plan in Chapter 13. Bankruptcy laws and 11 USC 707 b allow the US bankruptcy Trustee to dismiss a case.
Debtors must repay to the best of their ability. Hiding income or understating the net disposable income is another code violation which will cause a bankruptcy case dismissal.
Bankruptcy Eight Years Rule
You can only get one Chapter 7 bankruptcy discharge every eight years. This runs from the date you filed the first case to the date you filed the second case. The time you have to wait between filing a Chapter 7 bankruptcy and a Chapter 13 for another discharge is shorter. The cart for repeat filing is in our free manual and book.
Non-discharged Debts
Certain debts cannot be discharged. Child support, alimony, income taxes less than three years old, and most student loans are normally not dischargeable. However, every rule has exceptions when the stars align perfectly.
This happens in America’s student loan cases at least 600 times a year. If your attorney knows the rules, you may get lucky. However, if you use an attorney with no knowledge or real experience in the area, he practices good luck.
Contact Us for Professional Help and Free Consultation!
Your attorney will help you keep the case from being denied. Often the lawyer will work overtime to amend the petition to correct flaws when you forget assets or debts. If you forget a debt in a non-asset case, it is not a reason to be denied a discharge. Your lawyer amends the petition, and the debt is included.
Much of the trouble the honest person will see comes from inaccurate schedules. Use a qualified attorney. Don’t hire a lawyer based on attorney advertising or because he is a local attorney. He needs to know not just bankruptcy law but also family and property law.
However, some mistakes the attorney cannot cure. Our law firm offers a free consultation so you can take legal action to save your case so your case will not have the discharge denied or the case dismissed. Call 502-625-0905.
Resources for Bankruptcy
Louisville, Kentucky Bankruptcy Forms
How to Win Great Chapter 13 Plan Payments • Video
Filing Chapter 7 & Chapter 13 Bankruptcy
Means Test Qualifying for a Kentucky Chapter 7
How to Get an Affordable Chapter 13 Budget • Video
If you need to file bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office immediately to start the conversation with Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
