Denied Discharge – Am I stuck with the debt?

I filed a Chapter 7 and did not receive a discharge. Am I now stuck with the debt?

The answer: No.

The law: 11 U.S.C. § 523(a)(10), which refers to Chapter 7 bankruptcies, states that a discharge does not discharge an individual debtor from any debt where the debt was or could have been listed by the debtor in a prior case in which the debtor waived discharge or was denied discharge.

Explained: The debt is not dischargeable in a Chapter 7.

However, 11 U.S.C. §1328(a) states that discharge is to be given at the completion of a Chapter 13 bankruptcy unless….

It states several things. However, debt that was denied a discharged in a prior bankruptcy is not listed.

What does this mean?

It means that even though your discharge was denied in a Chapter 7, and filing another Chapter 7 will not get rid of the debt, the filing and successful completion of a Chapter 13 does result in a discharge of this debt.

The information listed above is general in nature. Therefore, you need to speak with a bankruptcy attorney who can look at your specific situation in order to give you advice on your case.

Why was my discharge denied?

My discharge was denied. What does that mean? Why did that happen?

A denial of discharge can happen for many different reasons. The reasons also depend on which chapter of bankruptcy was filed. Commons reasons for denial of discharge for each chapter of bankruptcy are listed below:

Chapter 7

• Failure to provide documents to the trustee

Ø This can range from pay stubs, tax returns and bank statements to divorce decrees, etc. Anything that they trustee requests needs to be turned over.

• Failure to complete and file the Financial Management Course (FMC) which is the 2nd class that must be taken before you will receive a discharge.
• Failure to turnover assets that were discovered by the trustee.

Ø Ex. The trustee discovers you are owed a $5,000 refund and requests that it be turned over to pay your creditors. Refusal to do so can end in dismissal of your case or revocation of your discharge leaving you still owing all of your debt.

Chapter 13

• Failure to provide documents to the trustee (same as listed above)

• Failure to pay in the required amount to the trustee.

Ø This is most commonly seen as a Lack of Feasibility which means that the amount you are paying in is not high enough to pay the required creditors. This can easily be fixed, but if it is ignored it can lead to denial of discharge.

• Failure to turn over tax refunds that are to be paid to the trustee while in a Chapter 13 bankruptcy.

Can I always dismiss my bankruptcy?

Can I always just dismiss my bankruptcy?

It depends. It depends on whether it is a Chapter 7 or a Chapter 13.

In a Chapter 13 you have a right to voluntary dismissal at any time UNLESS there has be a previous order stating otherwise. For example, if assets are discovered causing you to convert from a Chapter 7 to a Chapter 13 to pay the unexempt equity, sometimes the Chapter 7 trustee will motion the court to require conversion back to a Chapter 7 upon attempted dismissal of the Chapter 13. However, this is rare so in most cases a Chapter 13 can be dismissed at any time.

In a Chapter 7 you do not have an automatic right to voluntary dismissal. If assets are found, etc. it can become an involuntary bankruptcy meaning that the trustee can seize your unexempt assets to pay your creditors. You can still motion the court to dismiss the Chapter 7 but you have to provide a reason and dismissal is not guaranteed whereas in a Chapter 13 a reason for dismissal need not be given.

What happens after dismissal?

You are no longer in a bankruptcy and did not receive a discharge so creditors can begin calling and trying to collect debt. They can garnish wages, levy bank accounts, repossess cars and foreclose on homes. Given that dismissal can cause such adverse actions, make sure dismissal is discussed with your attorney prior to anything being done.

Can’t I just wait to file my taxes so that the trustee cannot take my refund?

Can’t I just wait to file my taxes so that the trustee cannot take my refund?

Good thought, but no. The bankruptcy estate and what the trustee can take interest in is not based only on what you actually have at the time of filing; it is also based on anything that is owed to you at the time of filing.

In short, waiting to file your taxes with not prevent the trustee from taking the refund. In fact, it can prolong the bankruptcy because the trustee can hold up the case until the tax refund is received and disbursed to your creditors.

There are many other assets that are part of the bankruptcy estate. For example, a personal injury claim is an asset. Even if the case has not been filed in state court or no settlement has been reached, the event that led to you being owed something, the accident, occurred prior to the bankruptcy and therefore is part of the estate. Similarly, loans that are owed to you, inheritances, insurance claims, etc. are all considered assets under the bankruptcy.

Given that some of the claims mentioned above may be for large sums of money, it is important to make your attorney aware of any money that you may be expected so that you can be told of your options in advance. The last thing you want to do it file a bankruptcy and have to forfeit a large settlement where it may have been avoided had your attorney known about it prior to filing.

Can I file a Chapter 13 until eligible for Chapter 7 and then convert?

Can I file a Chapter 13 until eligible for Chapter 7 and then convert?

The bankruptcy code lays out how often a Debtor can receive a discharge in each chapter of bankruptcy. For a Chapter 7 that time period is 8 years. Clients often have the idea that they can file a Chapter 13 to stop a garnishment for example and then when the 8 year period has passed, they want to convert to a Chapter 7.

While that is a great thought, it is unfortunately not an option. Everything, including eligibility for a discharge is based on the original filing date. This means that when you try to convert to the Chapter 7 they are still going to use the date of filing of the Chapter 13 to determine if you are eligible for a discharge.

But you are in luck, there is another option. You can file the Chapter 13 and stay in the Chapter 13 until the 8 year period has passed. At that time, your attorney would file for dismissal of your Chapter 13 case and you could then file a Chapter 7.

However, there are several issues that can arise in doing this such as car loans or other debt being included in your Chapter 13. This can get somewhat complicated and therefore you should contact your bankruptcy attorney before taking any action.

Wage Order in a Chapter 13 Bankruptcy

What is a wage order and what are the benefits?

A wage order in a Chapter 13 is where a portion of your Chapter 13 plan payment is automatically deducted from your paycheck by your employer. Your employer then sends the money directly to the trustee.

If you are paid bi-weekly then the monthly payment will be prorated. For example, if your Chapter 13 plan payment is $300 then $138.46 would be taken out of each paycheck.

Benefits to wage order:

· Presumed current if less than 10 days late

· No paying entire payment out of one paycheck

· Payments guaranteed to be made (so long as your employer is following the order)

· You are not tempted to spend the money elsewhere

· Allows for an overall successful completion of a Chapter 13 plan

In Illinois, wage orders are required where the Debtor is employed. In Missouri, while it is not required, it is strongly recommended as is ensures payments will be made to the trustee on a regular basis.

What are your payment options if you do not have a wage order?

Payments can be made in the form of a cashier’s check or money order and mailed to the trustee. You can also set up for an official bank check to be sent on a monthly basis directly to the trustee. They will NOT however accept a personal check from you.

To avoid incurring the fees of a money order on a monthly basis for your entire Chapter 13, talk to your attorney about setting up a wage order for you.