Avoid these common challenges to bankruptcy debt discharges

Once someone has started the bankruptcy process, he or she may believe they are out of the woods and that everything will proceed smoothly. Unfortunately, some creditors decide to challenge the debt discharge decisions of the bankruptcy court, which may hold up the filer's bankruptcy and may make some debts ineligible for discharge.

Exceptions under bankruptcy code section 523

Contrary to what some may believe, not all debts are dischargeable during bankruptcy. Section 523 of the federal bankruptcy code outlines the types of debts that may be excluded from discharge.

Debts generally considered not dischargeable include tax debt, any debt accrued as a result of fraud, child support debt, debts owed to the government for fines, penalties or other fees and debts owed as punitive damages as the result of a criminal or civil trial. Student loan debt is also not considered dischargeable unless the filer can prove that repaying it creates undue hardship.

However, it is possible for creditors to challenge the discharge of other debts that are typically eligible to be erased. Common challenges come from unsecured creditors, business partners and even friends and family.

Common challenge one: unsecured creditors

Typically, debt owed to unsecured creditors, including credit card lenders and creditors of other debt for which there is no collateral, is dischargeable under Chapter 7 bankruptcy and after a three-to-five year repayment period under Chapter 13 bankruptcy. However, creditors can challenge the court's decision to discharge this debt.

Most often, credit card companies challenge the discharge of "binge debt", which includes purchases like TVs, stereo systems and other big ticket luxury items. If creditors can prove the debt arose from these types of purchases, bankruptcy judges may be apt to require the filer to repay some or all of this debt.

Common challenge two: business partners

Sometimes, an ex-business partner will challenge a judge's decision to discharge debt owed to him or her. In some cases, this action is taken when there is acrimony between partners and one partner wants to burden the other with the debt. Other times, a lawsuit settlement between business partners may force one partner into bankruptcy, in which case the business partner who is owed money may pursue payment.

Common challenge three: friends and family

The last common challenge to bankruptcy debt discharge comes from an unlikely source: friends and family. Loved ones who challenge the discharge of debts owed to them often do so on the principle that the debt should be repaid, rather than in hopes of collecting the actual money owed.

Challenges to debt discharges can throw a wrench into bankruptcy proceedings, and it is important that filers are prepared to provide evidence as to why the challenged debts should continue to be discharged. Often, this requires the advice of an experienced bankruptcy lawyer. If you or a loved one is considering bankruptcy, please contact a bankruptcy attorney.