People want to know whether a bankruptcy can be overturned or revoked. There are three ways that a bankruptcy can be overturned or revoked: 1) denial of discharge, 2) revocation of discharge, or 3) denial of dischargeability. Each one is different.
Denial of Discharge
A bankruptcy discharge is denied through an adversary proceeding. Denial of discharge is usually what people mean when they ask if a bankruptcy can be denied.
When the discharge is denied it means that none of the debts are discharged in the bankruptcy and that those debts can never be discharged in bankruptcy. If the debtor files a bankruptcy in the future – even many years in the future – they cannot discharge any debt that could have been included in the bankruptcy where the discharge was denied. Obviously this is a severe penalty that has far reaching financial consequences for a debtor.
A denial of discharge requires a creditor or trustee to bring an adversary proceeding and prove that the debtor has committed fraud in connection with the bankruptcy, made false oaths in connection with the bankruptcy, refused to comply with a bankruptcy court order, or wrongfully denied the trustee access to property of the estate.
Denial of discharge is most common where the debtor has made a major omission on their petition or wrongfully transferred property during or after the bankruptcy was filed.
There is a deadline to file an action to deny the discharge. The deadline can be extended, provided the request is filed with the court before the deadline expires.
Revocation of Discharge
A revocation of discharge occurs after the discharge has been entered. It also requires an adversary proceeding. Similar to the denial of discharge, the revocation of discharge revokes the entire bankruptcy and none of the debts that were part of that bankruptcy can be discharged in any future bankruptcy.
Revocation of the discharge is more complicated than denial of the discharge and is granted on more limited grounds. One issue in a discharge revocation case is whether the complaining creditor or trustee had knowledge of the facts of the case before the discharge was entered.
Basically, if a creditor or trustee finds out that the debtor violated the Bankruptcy Code before the discharge is entered, then they must act on that knowledge before the discharge is entered. A discharge cannot be revoked at all if more than one year has passed since the case was closed.
An adversary proceeding to determine dischargeability only applies to specific debts. Unlike a revocation or denial of the discharge, a creditor has to prove that a specific debt should not be discharged in the bankruptcy. There are two types of debts that are nondischargeable: 1) self-executing, and 2) action required.
Action Required Non-Dischargeable Debts
The actin required non-dischargeable debts require a creditor to bring an adversary proceeding to deny the dischargeability of the debt. The adversary proceeding must be brought before the expiration of the deadline to object to discharge or the creditor must seek an extension of that deadline.
There are three types of debt that require an adversary proceeding to be deemed non-dischargeable:
- Money, property, services, or an extension of the same obtained through actual fraud or a written false statement of financial condition.
- Fraud or defalcation by a fiduciary, embezzlement, or larceny.
- Willful and malicious injury.
Self-Executing Non-Dischargeable Debts
If a debt is a self-executing non-dischargeable debt, then the creditor does not have to bring an adversary proceeding to deny the dischargeability of that debt. If the Debtor wants that debt discharged, then they have to bring an adversary proceeding to determine dischargeability.
The most common self-executing non-dischargeable debts include taxes, domestic support obligations, student loans, fines and penalties from criminal cases, student loans, personal injury claims related to a DUI, debts not listed on the bankruptcy petition, debts not listed on a previous bankruptcy petition, non-support obligations from a divorce, debt incurred for the purpose of paying taxes, and debts owed to a retirement fund (i.e. 401(k), IRA, or pension). There are other forms of nondischargeable debt, but they are case specific and do not arise as often.