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Denial of a discharge in a Chapter 7 bankruptcy proceeding

Most people in Tennessee who seek to discharge their debts in a Chapter 7 bankruptcy proceeding assume that their debts will be wiped out at the end of the process. This expectation, while understandable, does not represent the law that governs Chapter 7 discharges. Creditors have the right to object to a discharge of certain debts on any of several grounds spelled out in the Bankruptcy Code.

The applicable code section begins by stating that "The court shall grant the debtor a discharge" and then adds the important qualifier "unless" followed by the many exceptions to that rule. The first enumerated exception is a finding that the debtor, with intent to delay or defraud a creditor or officer of the estate, has allowed property to be transferred, destroyed or concealed within one year prior to filing of the petition. The same exception applies to debtors who have destroyed or concealed information concerning the debtor's financial condition. In essence, this group of exceptions to discharge concerns fraudulent acts by the debtor or the debtor's agents.

Additional grounds for denying a discharge include the debtor's failure to obey a court order, including an order to testify after a grant of criminal immunity. Another important reason for denial of a discharge is the existence of a prior discharge granted to the debtor within six years of the present proceeding. The burden for objecting to a discharge rests on the creditors. A creditor must file an objection to discharge, with notice to the debtor. The court will hold a hearing before acting on the objection.

Objections to discharge may include matters not included in this summary. Whether a party is the debtor or a creditor, consulting an experienced bankruptcy attorney can provide valuable information about the viability of an objection and the effect that it will have on the likelihood of obtaining a discharge.

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