Objections to Discharge (11 USC § 727)

In certain circumstances, the bankruptcy code provides creditors and the US Trustee with the right to object to a debtor’s right to receive a discharge, or request the bankruptcy court to deny the debtor’s discharge through an “Objection to Discharge” action under 11 USC § 727.

An Objection to Discharge action is distinct from a nondischargeability action in that, under Section 727, the creditor or US Trustee is requesting the court deny the debtor’s eligibility to receive a discharge from any debts, not just the objecting creditor’s debt.

Standard for Objection to Discharge Actions

In an Objection to Discharge action, the US Trustee or the creditor typically alleges the debtor engaged in actions or acts that resulted in harm to creditors. The objection relates to all debts. The standard used by the Bankruptcy Court in evaluating such allegations includes (paraphrasing the code):

1. The debtor transferred, removed, destroyed, manipulated, or concealed property.
2. The action took place within one year before the filing of the case or after the filing.
3. The debtor knowingly and fraudulently made a false oath or statement.

As you can imagine, this is a highly fact-sensitive test. Merely selling or liquidating property to try and survive with the intent to pay creditors eventually does not typically give rise to a valid objection. However, creditors (and even the US Trustee) can spin the facts to make the debtor seem devious. If you are a debtor who has been the target of an Objection to Discharge complaint or you are a creditor who feels a debtor is abusing the bankruptcy system, it is critical you consult with a skilled and experienced bankruptcy litigator as soon as possible to protect your rights. McFarlin LLP has represented thousands of clients in bankruptcy court actions, we can help.

Presumption in Objection to Discharge Actions

Although it is easy for the US Trustee or a creditor to allege facts relating to an objection to discharge, it is not quite as easy to actually prove up such a case. The test the court uses in evaluating whether a bankruptcy filing is so abusive that it needs to be denied completely is the “totality of the circumstances test.” In running the test against the debtor’s facts, the Code requires the Court to give the presumption of truthfulness to the debtor. To say it another way, the test is construed in favor of the debtor requiring those objecting to overcome the presumption with overwhelming facts to meet the burden of proof.