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Can Bankruptcy be Denied?

Yes, in some cases the Court may deny a debtor’s bankruptcy discharge. If a Court denies a debtor’s discharge, then the debtor will still be responsible for their debts. There are many reasons why a bankruptcy could be denied discharge.

When filing your Chapter 7 bankruptcy, you may be denied for multiple reasons. These reasons range from a minor mistake to intentional misconduct, such as fraud. The first step to qualifying for a Chapter 7 bankruptcy is to pass the means test for individual and/or household income. The means test takes into consideration your average income for the past six months, expenses, and family size and compares this to the median state income for families of similar sizes. By failing the means test, this can be a reason that a trustee would refuse to discharge the debts. If you fail the means test, there is an assumption that you can pay your debts because you earn in excess of the approved annual amounts. However, if you make above the median state income for your family size, you may still qualify for Chapter 7. You are allowed to deduct the national and local living expenses for your area, which may put you below the median income to qualify for Chapter 7. If you still do not qualify, you still may qualify for Chapter 13 bankruptcy.

Other reasons a bankruptcy may be denied is fraud or insider transfers of assets, preferential payments to creditors, or filing bankruptcy after incurring debts in anticipation of adding them to a bankruptcy (like loading up credit cards and then filing) that can lead to a trustee refusing to discharge debts. A bankruptcy fraud is committed when there is any attempt to hide, destroy, transfer assets, deceive the Court, among other reasons. When completing the bankruptcy forms, you must be truthful and disclose all pertinent information it requests. Fraud is committed when you knowingly do not include assets to retain them after the bankruptcy. Additionally, fraud may occur when you transfer an asset to someone, such as a friend or family member, in an attempt to keep the assets. For example, this can occur when putting your vehicle in a family member’s name. To avoid any accusations of fraud, a debtor must be fully transparent by disclosing all financial information.

A Chapter 7 may also be denied if you previously filed a bankruptcy within a set timeframe. The type of bankruptcy filed in the previous case determines the time limit between cases. The time starts to run on the date the prior case is filed with the bankruptcy court.

Previous Chapter 7

A debtor must wait eight years after filing Chapter 7 in order to file chapter 7 again.

It is possible to file Chapter 13 bankruptcy soon after receiving a Chapter 7 discharge, the filer just won’t be eligible to receive a Chapter 13 discharge in the second case. So, someone who successfully discharges their unsecured debts through Chapter 7 can file a Chapter 13 bankruptcy to pay off tax debts or other types of debt that survived the prior case.

Previous Chapter 13

A debtor must wait four years after filing chapter 13 in order to file chapter 7.

A debtor must wait two years after filing chapter 13 in order to file chapter 13 again.

If you previously filed a Chapter 13 case and received a discharge and are looking to file a Chapter 13 case again, you have to wait at least two years from the filing date of the first case before filing the second case. Repeat Chapter 13 bankruptcy filings are sometimes used to keep the payments on the filer’s student loans or tax debts manageable.

Also, having more than one case pending and then dismissed within a 12 month period can  affect what temporary protections you have as a debtor for how creditors can move forward with litigation even though a bankruptcy has been filed.  Normally creditors abide by what is called the ‘automatic stay’, they are barred from collecting against you during bankruptcy.

People often ask why they can’t use a credit card to pay for their bankruptcy and then put that inside the bankruptcy. By intentionally paying for your bankruptcy on your credit card, you are intending on not paying back your debt to the creditor. This constitutes fraud against the creditor, and is therefore illegal.

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