Individuals file for Chapter 7 bankruptcy amidst financial struggles to get a discharge. When a bankruptcy case is successfully concluded, the court grants a debtor a discharge where their unsecured debts are wiped out after liquidating the non-exempt assets. However, a discharge may not always be granted, as creditors, bankruptcy trustees, or the U.S. Trustee may find genuine reasons to request revocation of a bankruptcy discharge.
Can My Chapter 7 Bankruptcy Discharge Be Revoked?
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Note that a discharge revocation isn’t the same as a denied discharge or a dismissed bankruptcy case. A denied or dismissed bankruptcy case is that which happens while the bankruptcy is pending. In bankruptcy revocation, interested parties can request for revocation after the bankruptcy court has granted a debtor bankruptcy discharge. However, a revocation will depend on the evidence presented and the time limits as per the U.S Bankruptcy Code.
Reasons For Revocation Of Chapter 7 Bankruptcy Discharge
In Chapter 7 bankruptcy, a party in interest can request that a debt discharge be revoked if they can show that the debtor:
- Obtained the debt discharge fraudulently, and that the fraud was only discovered after the debt discharge was granted
- Received or became entitled to receive property deemed part of the bankruptcy estate but failed to inform the trustee
- Disobeyed court orders or failed to cooperate with the bankruptcy trustee
- Failed to produce documents necessary in the bankruptcy case or failed to clarify any misstatements made to the bankruptcy court or trustee or any inconsistencies in their paperwork
What Constitutes Fraud In Chapter 7 Bankruptcy?
Fraud in Chapter 7 bankruptcy can result in serious consequences, including fines, criminal conviction, or revocation of discharge if the fraud is discovered after the bankruptcy case is closed. Fraud may happen before or after bankruptcy, but that which happens during bankruptcy is more likely to lead to revocation of debt discharge.
Most importantly, fraud must be intentional and can only lead to revocation of debt discharge if it is believed that you knowingly and deliberately committed fraud. For example, accidentally leaving out an income source or expense may not be considered fraud. However, by failing to include a vacation home in your assets list on your bankruptcy papers, it is likely that you have hidden an asset or committed perjury.
Any scheme or act to deprive several creditors could be considered criminal fraud. Some common forms of criminal fraud include:
Concealment Of Assets
Debtors who fail to disclose property transfer before filing for Chapter 7 bankruptcy could have their discharge revoked if the concealment is discovered after the case is concluded. When filing for bankruptcy, failing to disclose assets also rises to concealment, and debtors could have their discharge revoked.
Providing False Information
Debtors are required to be completely honest when providing financial information to their trustees or filling the bankruptcy forms. As such, filing a Chapter 7 bankruptcy form with false information or hiding information deemed important for the process can lead to revocation of discharge if discovered after the bankruptcy case is closed.
Unauthorized Filings And Identity Issues
In some cases, debtors may file bankruptcies in different jurisdictions. Regardless of whether they file using proper identification documents, such multiple filings amount to bankruptcy fraud and lead to the revocation of debt discharge if it comes to light post-bankruptcy.
Bribery And Embezzlement
Bribing a court official or trustee is another form of bankruptcy fraud punishable under bankruptcy laws. Debtors may also have their discharge revoked for misappropriating funds from their bankruptcy estate.
Time Limits For Revoking A Chapter 7 Bankruptcy Debt Discharge
Under the U.S. Bankruptcy, any party in interest must request revocation of discharge based on fraud or any other valid reasons within one year from the date the court grants the debt discharge or within one year from the closing date of the case, whichever is later. While a discharge is granted almost immediately after the case is closed, the matter often remains open for some time to facilitate the liquidation of assets.
Consequences Of A Revocation Of Bankruptcy Discharge
The process starts when a party in interest (creditor or trustee) uncovers a fraud and files a complaint with the bankruptcy court. A debtor is entitled to notice of a revocation request and the right to a hearing in court. A motion to revoke a bankruptcy discharge is an adversary proceeding where both parties must produce documentary evidence and testimony at a hearing. Therefore, it is always advisable to have a bankruptcy attorney represent you for their bankruptcy litigation experience.
Debtors who are found guilty of bankruptcy fraud or any other reason that could result in a revocation of their discharge will face the following consequences:
Reinstatement Of Debt
After a discharge revocation, none of the debts owed to creditors are discharged – they are reinstated as if the Chapter 7 bankruptcy was never filed. In cases where the debt accrued interest, debtors are expected to pay the interest as well. Worse still, such debts may continue to accrue interest, making the debtor’s financial situation more adverse.
Loss Of Assets
Whenever a court revokes a debt discharge, the debtor’s non-exempt assets are liquidated to pay off creditors. If the money raised from the liquidation of assets is insufficient, unpaid creditors can still pursue state law claims to recover unpaid debts.
The Department of Justice might find a debtor guilty of bankruptcy fraud or establish that they committed other bankruptcy crimes like perjury. Debtors may also be prosecuted for other crimes like tax fraud, which will attract separate penalties. The consequences of committing bankruptcy fraud are usually stiff, as debtors may receive up to 5 years in federal prison and could also be assessed fines of up to $250,000.
Inability To Apply For Bankruptcy
Debtors who have their Chapter 7 bankruptcy discharge revoked may not file another bankruptcy case immediately. Depending on the circumstances, debtors may have to wait for several years before applying for bankruptcy again. In some instances, debtors won’t be allowed to file for bankruptcy ever. Filing for Chapter 7 bankruptcy under the guidance of a bankruptcy attorney will ensure that all bankruptcy forms are filled appropriately and that no vital details are left out. Generally, filing in accordance with the law prevents the prospect of revocation of a discharge