When filing for Bankruptcy a consumer debtor may choose to liquidate under Chapter 7 or reorganize under Chapter 11 or 13. See 11 U.S.C. § 109(e) Many debtors are ultimately seeking a discharge which is may be granted by order of the bankruptcy court. See 11 U.S.C. § 727(a)(1). A debtor who successfully obtains court approval of a reorganization plan, which is not a 100% plan, under Chapter 11 or 13, generally will also receive a discharge following successful completion (payments, etc.) of the plan. See 11 U.S.C. §§ 1328(a), 1141(d)(5).
Many debtors seek a discharge under the Code, because it releases the debtor(s) from all debts that arose before the bankruptcy petition, with the exception of certain debts that are “nondischargeable,” regardless of whether a claim is filed. See 11 U.S.C. §§ 523, 727(b). The discharge is commonly referred to as a “fresh start.” The discharge also acts as an automatic and permanent injunction against a creditor’s attempts to recover those debts which were discharged as a result of the bankruptcy. See 11 U.S.C. § 524(a).
What may happen is that one of your creditors or party in interest may object to the entry of the discharge. See 11 U.S.C. § 727(c). Alternatively, a creditor may seek to establish that the debtor’s obligation to that creditor should not be discharged. See 11 U.S.C. § 523(c)(1). Section 523(a) sets out the types of debts that are not dischargeable in bankruptcy. Section 523(c), however, provides that the debtor will be discharged from a debt of a kind specified in subsection (a)(2) (debts for false representations), (a)(4) (debts for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny), and (a)(6) (debts for willful and malicious injury) unless the court determines such debts to be nondischargeable.
A creditor objecting to discharge under § 727(a) or dischargeability under § 523(a)(2), (a)(4), or (a)(6) bears the burden of proof by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 286 (1991). “Intertwined with this burden is the basic principle of bankruptcy that exceptions to discharge must be strictly construed against a creditor and liberally construed in favor of a debtor so that the debtor may be afforded a fresh start.” Hudson v. Raggio & Raggio, Inc. (In re Hudson), 107 F.3d 355, 356 (5th Cir. 1997).
There are several grounds for objecting to a debtor’s discharge, including:
1. the debtor failed to keep and produce adequate financial records;
2. the debtor failed to explain satisfactorily a loss of assets;
3. the debtor made a materially false statement in his bankruptcy papers;
4. the debtor failed to obey a lawful order of the bankruptcy court; or 5. the debtor fraudulently transferred, concealed, or destroyed property of the bankruptcy estate.
When objecting to your discharge the Trustee of Creditor’s complaint must be filed on or before 60 days from the first date set for the creditors meeting. Typically, a creditor has less than 90 days after receiving notice of the bankruptcy case to file a complaint. Most commonly I see people receiving a Complaint in their Bankruptcy Case for reason number three (3) listed above; the Trustee or a creditor will file a complaint under § 727(a)(3) or § 727(a)(4)(A). A complaint filed under these sections is commonly filed because the debtor(s) failed to disclose assets on the bankruptcy petition. Trustees are weary to play a game of hide and seek with debtors.
Full disclosure of all of your assets will avoid these pitfalls and allow your attorney to advise you if Bankruptcy is the right choice for you. It will also allow your attorney to advise you what assets can be protected via the many exemptions available under the Bankruptcy Court. Aside, from filing a complaint in the Bankruptcy Court, the Trustee could refer your case to U.S. Attorney’s Office which may decide to prosecute you criminally for Bankruptcy Fraud Crimes. This was seen recently where the U.S. Attorney’s Office, District of New Jersey filed a complaint in New Jersey District Court against a former NJ resident for Bankruptcy Fraud.
In his petition it is alleged that Young concealed personal assets, failing to disclose the existence financial accounts – or that any of these accounts were closed as of the date of the filing of his petition. Young allegedly failed to disclose the purchase of furniture or the sale of a Ford truck, within months of the filing. He allegedly failed to disclose income from an ebay business. Young also allegedly made numerous materially false statements under oath in relation to his bankruptcy petition.
A Bankruptcy fraud charge carries a maximum potential penalty of five years in prison and a $250,000 fine.
The New Jersey personal bankruptcy attorneys at Riviere Cresci & Singer LLC can answer any questions you may have concerning bankruptcy fraud, or any general bankruptcy questions. If you live in New Jersey, including Princeton, New Brunswick, Hanover, and Monmouth Beach call us for a free consultation to find out how we can help you.