Creditor Objections to Discharge, Part I (how likely are they to object?)

I know this topic has been a long time in coming...so here goes...time to address Creditor Objections.

Background

The BK code declares that certain types of debts are non-dischargeable and you can find that list in section 523(a) of the BK Code. However, depending on the type of debt and the way the exception is worded, sometimes the burden falls on the "Debtor" to prove a certain debt can be discharged (i.e. student loans), and other times the burden falls on the "Creditor" to prove that their debt is non-dischargeable in BK.

When we are discussing creditor objections, we are talking about unsecured creditors, typically credit cards, etc.

Brief overview of process.

If a creditor determines that an objection is warranted, the creditor will file an Objection to Discharge of THEIR debt. This filing begins what is known as an adversarial proceeding in BK court. Think of an Adversarial Proceeding as a mini-law suit that occurs within your Bankruptcy. The debtor then must file a response, evidence is gathered and supplied to both sides, and a hearing is held in front of the BK Judge who decides the case. (more on this process in Part II).

Important note, An Objection to Discharge is between the debtor and the creditor...the BK Trustee and US Trustee ARE NOT involved in any way.

Why might a creditor object?

As stated earlier, the exceptions to discharge are listed in Section 523(a) (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+11USC523) of the BK code. Specifically, your typical unsecured creditor would object using Section 523(a)(2), but that section contains several different types of non-dischcargeable debt.

1. $500 owing to a single creditor for the purchase of "luxury" goods within 90 days prior to filing BK.
2. $750 owing to a single creditor for a cash advance (i.e. balance transfers are cash advances) obtained within 70 days prior to filing BK.

The above two rules are known as the per-se rules. The creditor need not prove intent (i.e. fraud), only that the transactions meet the criteria stated. If you have been reading this forum at all, these rules are known and the infamous 70/90 day rules.

3. For money obtained under false pretenses, false representation, or actual fraud. Basically, what that means is that you (1) made the charges/cash advances knowing you were going to file BK (2) made the charges/cash advances while insolvent and/or could not have had a reasonable expectation that you could pay back the debt.

This post primarily addresses the objection for number 3 above.

That is all well and good, how about an example?

Ok...Debtor lost their job in October, already has $75K in unsecured debt, is upside down in his house and cars, but goes out and spends $8K on Christmas for his family and friends in December, then files BK in April. The creditor would likely object because the debtor had no income, no assets, to which he could reasonably expect to make the payments on that debt.

Debtor is upside down in their house and cars, has $50,000 in unsecured debt, and had their hours cut at work, but in an effort to save money uses one of those convenience checks to try and save money on interest and transfers $15,000 of that debt to another credit card. Then files BK 4 months later. That debt is probably objectionable, the debtor had a decrease in income, and no assets (insolvent) and made a cash advance. (I bet this sounds familiar :) )

However, these are just hypothetical examples, a creditors decision to object is quite complicated.

What if I have charges on a credit card, and some may be objectionable and some are clearly not?

The creditor can only object to discharge to those charges that meet the criteria for objectionability. Meaning that, if you have a Chase card that you have been using for years that has a $12,000, but you do a balance transfer to your Chase card of $6,000 from your Citi card, and then file BK. Chase could ONLY object to the $6,000 balance transfer, not the entire pre-existing balance.

Ok, I understand now, but how likely is an objection?

The answer is "it depends", but there are some rules of thumb to help.

(a) If a debt is more than six months old, the odds of a creditor objection decrease substantially. The more distance in time between the time you made the objectionable transaction and file BK the better because a creditor will have a harder time proving "intent", i.e that you should have reasonably believed you could not pay back the debt at the time you took the money.
(b) Generally, the amount in question is usually over $2,000, but more typically over $4,000. The reason being, most attorney's who represent creditors in this capacity do so on contingency...20% for a reaffirmation, 25% if an objection actually gets filed. Thus, the amount in question must be worth the attorney's time and effort.

A factor that is at the bottom of the list is your ability to repay. Granted, you are filing chapter 7 for a reason, but a debt that is declared non-dischargeable has value outside of your ability to repay.

The refreshing thing to know is that objections are actually quite rare and are neither specious or random. Most debtors at least speak to an attorney or do some amount of homework to insulate themselves from possible objections, i.e. waiting to file BK, stop using credit etc. Thus, for the most part, when a creditor objection is filed, the debtor that it is filed against usually did do something under-handed.

What can I do to minimize the chance of an objection

The answer, again, depends on the specific circumstances, but here are some general tips if you think you may have made some charges that could be objected too.
1. Wait to file BK, at a minimum wait 3 months from the date of the charge (get outside the 90 day), but if the charge was particularly large, wait 6 months.
2. During that waiting time, make at least the minimum payments on THAT card.
3. Stop using that credit card.

If the creditor is successful having a debt declared non-dischargeable, what does that mean?

Basically, it means that you owe that debt forever until it is paid, with all accumulating interest and you can NEVER discharge that debt, not even in a future BK.

Does a creditor's objection effect any other aspect of my BK?

There is good news here: the answer is no! Even if a creditor files an Objection to Discharge of their debt, the rest of your BK will proceed normally (assuming there are no other issues :) ). You will recieve your discharge in BK on time, and often times, that discharge will be received before the hearing the objection.

Practical Advice

Creditors tend to only object in the "obvious" cases. As a result, most debtors need not worry about a creditor objection. If you do some homework, or consult with a good attorney and are open and honest with your attorney, most debtors can plan properly to avoid objections. More than anything else, TIME is the debtor friend to avoiding objections. If you made some questionable transactions, WAIT to file BK, wait at least 6 months, but the longer the better. Thus, although creditor objections are possible, its not an issue the average debtor need lose any sleep over.

Go on to Part II (http://www.bkforum.com/showthread.php?t=20078)for further discussion of what happens when a creditor decides to object.

[i]Note, this post is a work in progress, please post any suggestions or questions you would like to see addressed

OK two things.

1. Under heading: "What if I have charges on a credit card, and some may be objectionable and some are clearly not?"

Don't you mean a transfer FROM the chase card TO the citi card?

and 2. Under heading: "What can I do to minimize the chance of an objection"

When you say to "During that waiting time, make at least the minimum payments on THAT card." Would paying only the cards with objectionable transactions be considered preferential treatment?

OK two things.

1. Under heading: "What if I have charges on a credit card, and some may be objectionable and some are clearly not?"

Don't you mean a transfer FROM the chase card TO the citi card?

and 2. Under heading: "What can I do to minimize the chance of an objection"

When you say to "During that waiting time, make at least the minimum payments on THAT card." Would paying only the cards with objectionable transactions be considered preferential treatment?

1. No...the point of the example is that your Chase card has an existing, non-objectionable balance, and THEN you did a transfer TO your chase card FROM the Citi card close to filing BK. The point is that the "existing" balance is not objectionalbe, only the amount that is transfered can be objected to.

2. First off, people are WAY over concerned about preferential transfers. Preferential transfers are between the creditor and the trustee, they DO NOT effect the debtor. I suppose if the minimum payments were high enough, "maybe" there could be a cummulative PT, but it is very unlikely. Also, there is a 90 day period for PT's.

All that happens in a preferential payment issue is the trustee asks the creditor for the money back. If the creditor refuses, then the trustees sues that creditor. The debtor is not even a party to that action.

I guess I was confused as to why Chase would object to the transfer from Citi.

Thanks.

I guess I was confused as to why Chase would object to the transfer from Citi.

Thanks.

Because you transfered the balance TO the chase card :)

Great post HHM! Two questions.

(1) When it comes to insolvency you state that the only issue is whether one had a "reasonable expectation" to pay off the debt. However, the gist of your post seems to be the only real factor is time. Is that intentional? I could see several other factors coming into play, such as the ratio of the debt to income (a balance transfer of 6k but you only had 12K in income last year). Obviously, at the end of the day what is reasonable to the creditor or to the judge might not seem reasonable to you or me. So what other criteria is looked at besides time?

(2) What exactly does knowing you are going to file BK mean? I know people draw a distinction between "fraud" and "planning a BK" but the line seems very very fuzzy to me, a newbie in this area. Explaining exactly and specifically how this line is drawn would be useful.

Great post HHM! Two questions.

(1) When it comes to insolvency you state that the only issue is whether one had a "reasonable expectation" to pay off the debt. However, the gist of your post seems to be the only real factor is time. Is that intentional? I could see several other factors coming into play, such as the ratio of the debt to income (a balance transfer of 6k but you only had 12K in income last year). Obviously, at the end of the day what is reasonable to the creditor or to the judge might not seem reasonable to you or me. So what other criteria is looked at besides time?

(2) What exactly does knowing you are going to file BK mean? I know people draw a distinction between "fraud" and "planning a BK" but the line seems very very fuzzy to me, a newbie in this area. Explaining exactly and specifically how this line is drawn would be useful.


1. Certainly there are other factors, the post is long enough without going into every possible scenario. So I try to summarize the point as being, could a person in the debtor's shoes reasonable expect to pay off the debt. But that point goes more to the question of what the lender would actually have to prove if they filed and objection. When it comes to the question of "whether or not they will object" (which is the main purpose of this post) Time, amount, and purpose of charge, are the main factors the lender has available to them in making the decision to object.

2. Unfortunately, there is no way to make that line unfuzzy. If the debtor has actually made the decision to file BK and then goes out and runs up their credit cards, we would all agree that is probably fraudulent. But if a debtor goes out, gets new brakes on their car and charges that expense, waits 3 months, then files BK, is that fraud???, I don't know. Ultimately, I think it comes down to: if the debtor sees, or should see, the writing on the wall (BK is coming), but continues to act carelessly with his available credit, that debtor will probably get popped for objections.

Wow, great post.

Few quick questions for you if you don't mind.

Are those finite limits? $500 luxury, $750 cash advance. Meaning must the charges have met those specific parameters before an objection can or would be instituted?

I will give you an example, suppose a cash advance of $745 was made. Does that now become "safe" for lack of a better word? Would it still be prudent to wait the obligatory 70 days, or can I file a week or two after that without worrying? I am feeling sorta unconcerned because why even put dollar amounts on it if it were something they would object to. If they had the ability to object at any price point, I assume they would. The fact that their seems to be a tier of sorts insinuates they have no say in anything below that amount.

Second question, If I make a cash advance(lets use the example above of $745), and with the cash advance I buy a Prepaid debit card and then from their make what might be referred to as "luxury" purchases... Would that still fall under the cash advance policy since I technically first initiated movement on the funds in that matter?

Thanks for all your great advice.

This forum does not exist to teach you how to defraud the system.

Are payments taken into consideration when looking at the "aggregate" amounts?

Say, for example...

One charges a combined amount of $4000 over the past 90 days to one creditor. For this example lets assume it is mostly all luxury in nature. During this same time, said debtor makes $5000 in payments.

1) Can/how likely/will the creditor still object to the $4000?
2) How would the courts likely rule on an objection in this case?

This forum does not exist to teach you how to defraud the system.

yeah. because im looking to "defraud the system".

Did it ever occur to you that I was diagnosed with cancer and had no health insurance? Did it ever occur to you that maybe I have no choice but to make some charges to support my family.

Its pretty obvious though, for anyone else reading this.

They would NEVER put those cap limit amounts if the credit card companies could go after any and all amounts below it. It would just be a general rule for all charges made and perhaps a time limit of 70 and 90 days.

There would be no point in issuing those cap numbers if they could just go ahead and go after any sum money under it anyways.


Thanks for all your help, because you know enough about me and my life to make an accusation like that. And you are the moderator here??....my god.

Are payments taken into consideration when looking at the "aggregate" amounts?

Say, for example...

One charges a combined amount of $4000 over the past 90 days to one creditor. For this example lets assume it is mostly all luxury in nature. During this same time, said debtor makes $5000 in payments.

1) Can/how likely/will the creditor still object to the $4000?
2) How would the courts likely rule on an objection in this case?

(a). I assume you mean make $5,000 in payments to THAT creditor to whom you charged the $4,000.
If that is what you mean, then if you wait the 90 days, you should be ok. But the example is nonsensical, if you can afford to make $5,000 worth of payments to this creditor, why would you "charge" $4,000...why not simply use the cash to buy whatever it is you needed. :)

Are those finite limits? $500 luxury, $750 cash advance. Meaning must the charges have met those specific parameters before an objection can or would be instituted?

For the "per se" rules, yes, those amounts are fixed. If you have charges less than those amounts even within the 70/90 day period, the creditor would not prevail on an objection using the per-se rules, section 523(a)(2)(C)(i) and (ii).

However, lets be clear, borrowing money without the intent to pay it back is Fraud, nine ways to Sunday. Maybe I misread your post mackdriver, but the intent of this forum is not to help someone intentionally defraud the system, but instead to maximize a person's chances of having a successful BK.

(a). I assume you mean make $5,000 in payments to THAT creditor to whom you charged the $4,000.
If that is what you mean, then if you wait the 90 days, you should be ok. But the example is nonsensical, if you can afford to make $5,000 worth of payments to this creditor, why would you "charge" $4,000...why not simply use the cash to buy whatever it is you needed. :)

I'm saying that the charges/payments occur WITHIN 90 days of filing.

I get your point using cash instead of charging. :)

check you PM...

Wow, great post.

Few quick questions for you if you don't mind.

Are those finite limits? $500 luxury, $750 cash advance. Meaning must the charges have met those specific parameters before an objection can or would be instituted?

I will give you an example, suppose a cash advance of $745 was made. Does that now become "safe" for lack of a better word? Would it still be prudent to wait the obligatory 70 days, or can I file a week or two after that without worrying? I am feeling sorta unconcerned because why even put dollar amounts on it if it were something they would object to. If they had the ability to object at any price point, I assume they would. The fact that their seems to be a tier of sorts insinuates they have no say in anything below that amount.

Second question, If I make a cash advance(lets use the example above of $745), and with the cash advance I buy a Prepaid debit card and then from their make what might be referred to as "luxury" purchases... Would that still fall under the cash advance policy since I technically first initiated movement on the funds in that matter?

Thanks for all your great advice.

One of our members, Majormike, purchased gift cards (though in larger amounts) but they were considered luxury purposes by the credit card company. The company has objected to the discharge of that debt.

HHM, don't forget to make this a sticky!!!

HHM, don't forget to make this a sticky!!! Done :)

One of our members, Majormike, purchased gift cards (though in larger amounts) but they were considered luxury purposes by the credit card company. The company has objected to the discharge of that debt.

maybe you dont understand.

I said make a CASH ADVANCE. what you do with the money after that doesnt matter... its a bulk cash advance.

Like they are really going to go investigate what I did after I got that cash, how would they even go about that... its 700... you are joking right. It would cost 10 times that to hirer someone to try and garner my records and investigate where every last cent was..

and for what? to object to 700..

You are right...for that amount not much is going to happen.

As far as them finding out, (1) they could ask you at the 341 meeting, in which you will be under oath (2) if you deposited the money in your bank, they merely have to look at your bank records.

But in any event, borrowing money with the intent to not pay it back is FRUAD, but will you get dinged for $700, probably not.

did you have your creditors mtg yet at if so what was it like?

"Also, there is a 90 day period for PT's."

:blink:

What does that statement mean? Does it mean that the trustee will only look at PT's that occurred 90 days prior to when you file? I'm reading/studying a book mentioned on this board about the Ch. 7 BK process, but this is a new planet for me. Thank you for your extremely helpful posts, and the clarification on the above statement!

Thank you in advance for your input! Let me also apologize for rambling. I've been up all night reading and fretting.:unsure: I am 'doing my homework', I have a credit counseling appointment next week, and I am reading/studying Nolo's downloadable book (better than carrying around book w/bk on the cover). Just before I got the guts to search for a bk forum, I did a balance transfer for $3500 from one of my credit cards into my checking account.#%!* I did this to keep me afloat literally. If I understand the info I've read here, I need to wait 6 mos. to be on the safe side before I file, and I need to make minimum payments on that card at least. I am an unemployed teacher in California where many teachers who had contracts were pink slipped because of severe cuts in the budget. Even substitute teaching jobs severely dropped off in all three districts I have been working in this year. I am not eligible for unemployment benefits in my situation. I have a time share I cannot afford to keep (much less use), so I am looking into selling that. I have been applying for the few jobs that have been posted in this area (me and all the other pink slipped teachers), as well as jobs out of state. I literally have nothing left to live on. I do have credit cards, but don't want to get into more debt. My back is against the wall. I let my guilt, fear and pride prevent me from looking into bk because of the stigma. :cry: My older sister went through it and my father was/is so critical of her because of it. He's pretty critical of everyone in his own family come to think of it... If I have no source of income other than the balance transfer I just did and the pennies I will be able to earn in the one year round district in the area when they start the new year next week, the minimum payments will gobble that up in no time. If I quit paying the minimums on all the credit cards but the one I just did the balance transfer from, won't the interest rate go up and the late fees start to accumulate? :(I have a car that I'm leasing w/o any other vehicles to use for transportation to sub and hopefully to get to interviews. (The lease ends in May.) What are the pros and cons of continuing to make payments on it? I haven't been to the dentist for several years (since I had my last teaching contract in 2005), and I have a crown that's been loose for months. I'm afraid I'll need a root canal as it is. Is it advisable to go to a dentist and not pay? I have stripped myself down to bare bones on everything in my life. The concept of a 'normal life' has been history for me for quite some time. No luxury expenditures here but organic yogurt! I have read many of the posts here, and am pretty new to forums. I apologize if I posted too much, in the wrong place, etc... Thank you for your insight and feedback. Two other quick questions before I stop: 1. How do you apply for the fee waiver to file? & 2. Is it a good idea to call creditors before you stop paying and give them a P.O. Box so that other people you live with won't see the nasty collection letters, etc... Thanks a million $$$(LOL).

Sorry noone has posted back here, sounds like a tough situation new.

Try not to panic.

It is true that it is best to wait 6 months. However if you can't afford the minimums send less but send something so that you can prove you attempted to make some payments. Try to send at least 2 payments at minimum if you can. After that cut it loose and wait the full 6 months to file. I think you'll be okay.

WOW Heyu! That's quite a rollercoaster! Best of luck to you. Focus on the new baby - that's awesome! Even without the 6 figure income! Good luck.:clapping:

how long the credit cards keep your application;what if you lie on the application about your income or you change one #from social security;can be problem in the BK;

Lying about your income is one thing, changing one # in the SSN is another. You do not want to do the later as that will more than likely put a fraud alert on your Credit Report (I have seen it done), because the name and SSN do not match (note, you are receiving the credit card offer because the bank pulled your credit report, and guess what number is on the credit report).

But yes, technically, lying on your credit app is grounds for an objection, but I have never seen it actually used by a creditor to object.