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  • What a Debtor Can Do to Stave Off Creditors’ Objections to Discharge

Chapter 7 bankruptcy is designed to give debtors a fresh start by discharging — that is, cancelling — their debts. However, this process can be frustrated if a creditor brings a challenge to the dischargeability of certain debts on various grounds.

A creditor can initiate an adversary proceeding by filing a complaint with the bankruptcy court. This is essentially a case within the case. It follows a process similar to that of a civil lawsuit, including discovery, motions and trial. The purpose of such a proceeding is often to determine the dischargeability of specific debts that the creditor believes should not be eliminated.

Under Section 523 of the Bankruptcy Code, certain debts are deemed nondischargeable on certain grounds. The creditor may allege any of the following:

  1. Fraud and misrepresentation — The debtor obtained money, property, services, or credit through false pretenses, a false representation, or actual fraud. This might include intentional deceit by the debtor to secure benefits unjustly.

  2. Willful and malicious injury — A debt may have arisen from the debtor's willful and malicious injury to another person or entity or to their property. The debtor must have intended to cause harm or have been recklessly indifferent to the consequences of their actions.

  3. Failure to fulfill a fiduciary duty — A debt may have arisen from a breach of fiduciary duty by the debtor while acting in a trust capacity. This can involve situations where the debtor has abused a position of trust to the detriment of another, such as through embezzlement.

The defenses a debtor can raise in an adversary proceeding depend largely on the grounds cited by the creditor for challenging the dischargeability of the debt. Common defenses include:

  • Lack of intent — In cases of alleged fraud or misrepresentation, the debtor can argue that there was no intent to deceive. A similar viable defense is demonstrating a belief in the truthfulness of their statements or actions at the time.

  • Absence of willfulness or maliciousness — For debts related to injury, the debtor might demonstrate that the injury was accidental or that there was no intent to cause harm.

  • Fulfillment of fiduciary duties — If breach of fiduciary duty is alleged, the debtor can argue that they acted within the bounds of their fiduciary responsibilities and that no breach occurred.

If the debtor prevails, the debt will be discharged along with other debts in the bankruptcy. A skilled Chapter 7 bankruptcy lawyer can help the debtor navigate the legal challenges, develop effective defenses, and represent their interests vigorously in court. Moreover, a lawyer can negotiate with creditors to potentially settle claims out of court. 

At Marlin Branstetter Attorney at Law in Anaheim, I deliver effective legal support to Californians in Chapter 7 bankruptcy, helping them overcome creditors’ challenges to debt discharge. Call me at 714-276-8589 or contact me online to schedule a free initial consultation.