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More about Dealing with Very Aggressive Creditors in Bankruptcy

Most creditors don’t challenge your write-off of their debts in bankruptcy. But if one does, the system is poised to resolve that challenge relatively quickly.


The last blog, and this one, are about what happens when a creditor raises one of the few available arguments to try to prevent its debt from being legally discharged. (This is separate from debts that by their very nature are excluded from being discharged—child support, most student loans, for example.) As emphasized last time:

  • Most potentially dischargeable debts DO in fact get discharged. In most consumer bankruptcy cases, no creditor raises any challenges. To avoid any particular debt from being discharged, the creditor has the burden of establishing that the debt arose out of a very specific sort of bad behavior by you, one that is on a list that is in Section 523 of the Bankruptcy Code.
  • Your creditors have a very firm deadline—usually about three months from the filing of your bankruptcy case—for formally raise such a challenge, or else lose the ability ever to do so.
  • The challenge is raised by filing a “complaint” stating the facts and law under which the debt should not be discharged. This starts an “adversary proceeding,” a lawsuit focused only on this question.

Avoid Losing by Default

After a creditor files a complaint, THE most important thing to realize is that it will automatically win if you and your attorney do not file a formal answer at the court within the stated deadline. So contact your attorney immediately if you receive a complaint. Depending on the circumstances, you may have discussed this in advance and so could be expecting it. But sometimes it will come as a total surprise. Either way, get in touch quickly with your attorney to determine your game plan and begin acting on it.

Most Discharge Challenges Don’t Go to Trial

The adversary proceeding can go through all the steps of a regular lawsuit. After filing the answer, there can be “discovery”—the process of requesting and exchanging any pertinent information and documents, and holding depositions (questioning witnesses under oath, usually focusing on you and your alleged behavior in incurring the debt). And there could be various kinds of motions, pre-trial hearings, and a full trial. But these kinds of adversary proceedings rarely go through all these step and get to trial, because the amount of money at issue usually does not justify the cost involved for either side to pursue it that far.  So after both sides get a clear picture of the facts, there is usually a settlement. Sometimes one side or the other sees that the facts are not looking good and mostly or completely gives in. The debtor may concede that his or her actions fit the legal standards to prevent the debt from being discharged, or the creditor sees that it’s wasting its time and will dismiss the adversary proceeding. Or else the two sides come up with some sensible compromise.

But if there is enough at stake, or else if one or both sides are unreasonable and insist on getting a decision from the judge (these cases do not go to a jury), the dispute does go to trial. These trials usually last a half-day, or a day, or two, very seldom longer. At the end of trial the bankruptcy judge decides whether the debt is discharged or not. Extremely rarely, this decision can be appealed, in fact theoretically all the way up to the United States Supreme Court!

What’s So Quick and Efficient about All This?

Any litigation is very expensive, so you hope to avoid any discharge challenges. But bankruptcy court is a relatively fast and efficient forum for a number of reasons:

1) Because creditors have the opportunity to review your finances beforehand, much of the time they will not bother to raise challenges at all, avoiding the issue altogether, along with avoiding that additional cost to you.

2) If a creditor does raise a challenge, the issues are narrow and so the fight is usually focused on just a few critical facts. Less facts to dispute makes for a less complicated process.

3) Adversary proceedings move along fairly quickly. Compared to most state court and regular federal court litigation which often takes a couple of years, these kinds of adversary proceedings tend to be resolved in a matter of few months

4) Because bankruptcy judges deal with these kinds of challenges all the time, they are extremely familiar with these legal issues. Compared to conventional trial courts where the judges often have to get into unfamiliar territory, and often deal with multiple parties with huge dollar amounts at stake, these adversary proceedings are quite straightforward.

Having a creditor object to the discharge of a debt can significantly complicate a Chapter 7 or Chapter 13 bankruptcy case. But these disputes are usually settled relatively quickly. Help this happen by informing your attorney about any threats made by creditors before your bankruptcy is filed, and then working closely with your attorney if a creditor follows through on its threat by filing a complaint.


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