Creditors can challenge the discharge of your debts in a bankruptcy case, especially when the bankruptcy is filed after a business shuts down. To avoid these challenges, it’s important to understand why they happen and what can be done to prevent them.

Reasons for Creditor Challenges:

• Larger debt amounts, making litigation more tempting
• Personal debtor-creditor relationships
• Risky behavior by the business owner
• Creditors may know about the debtor’s risky behavior

Often, former business owners considering bankruptcy feel that a creditor will challenge the discharge of their debts in court. But such challenges are relatively rare, for the following legal and practical reasons:

1. The legal grounds under which challenges to discharge can be raised are relatively narrow. Instead of proving the existence of a valid debt—as in a conventional lawsuit to collect on a debt—the creditor has to prove that the debtor engaged in behavior such as fraud in incurring the debt, embezzlement, larceny, fraud as a fiduciary, or intentional and malicious injury to property.

2. In bankruptcy, the debtor files under oath a set of extensive documents about his or her finances, and is also subject to questioning by the creditors about those documents and about anything else relevant to the discharge of the debts. When these documents, along with any questioning, reveal that the debtor genuinely has nothing worth chasing—as is most often the case—this tends to cool the anger of most creditors. Only the most motivated of creditors will be willing to throw the proverbial good money after bad in the hopes of getting nothing more than a questionably collectible judgment.

In conclusion, a dischargeability challenge can turn a simple bankruptcy case into a complex one. Hiring an experienced bankruptcy attorney can help you avoid challenges and defend against them if necessary. Contact an attorney if you have reason to believe that a creditor may challenge the discharge of your debts.

To discuss options – bankruptcy and non-bankruptcy – in resolving your debt, schedule a free telephone call with New Jersey bankruptcy attorney Jennifer N. Weil, Esq. at this Setmore page or by emailing weilattorney@gmail.com.