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Bill Collector Says I Can't Eliminate the Debt in Bankruptcy?

Most debts are eliminated when you file a bankruptcy, especially the kind that a bill collector would likely be calling you about. So unless the debt is a student loan, tax, or some other special kind of debt, more than likely the collector who says you can't eliminate a debt either doesn't know what he or she is talking about or is lying to you.

Certain kinds of debt simply aren't eliminated ("discharged")-for example, child and spousal support, most student loans, many taxes. Some other debts are tied to collateral-your home, vehicle, and such-so you might want to pay to keep the collateral. And then there are all the rest of the debts, which would be discharged in bankruptcy unless the creditor objects. This blog today is not about those debts that simply can't be discharged or that you would not want to discharge. Rather it's about the rest of the debts, and potential challenges to the discharge of those debts by the creditors.

It's important to make clear that a creditor can't just challenge your right to discharge its debt simply because it wants you to pay it. No, the creditor has to be able to accuse you of having done something wrong related to the debt, something on a limited list of bad actions. So these challenges are quite rare.

These creditor challenges to discharge of a debt are also rare because most creditors are practical. So they think about whether it will be cost-effective to spend more time and money chasing a debt, and may well not do so if they are not confident that they have the facts needed to win.

In addition, bankruptcy law gives them a disincentive: if a creditor challenges the discharge of its debt and the court decides that it had no legitimate reason to do so, that creditor could be ordered to pay your costs and attorney fees defending the challenge. This would be in addition to the creditor's own costs and fees. As intended, this discourages creditors from raising questionable challenges.

Valid Grounds for Challenge by a Creditor

For a creditor to be able to successfully challenge the discharge of a debt it has to show that your bad behavior was of the kind specified on a list that is in Section 523 of the Bankruptcy Code, specifically subsections (a)(2), (a)(4), and (a)(6).

These parts of the Bankruptcy Code say that you must have either intended to defraud the creditor, made a misrepresentation to induce the creditor to give credit, abused a legal trust relationship (such as the executor of a will), embezzled or stole, or injured someone or their property intentionally and maliciously.

These are all quite serious kinds of inappropriate behavior. But a note of caution: some more ordinary kinds of behavior can also be included. For example, bouncing checks can sometimes be considered an intentional fraud, or else could be considered to be so reckless as to be considered essentially intentional. Similarly, using a credit card for a purchase or cash advance when you've already decided to file bankruptcy and never intended to pay the debt is likely fraudulent. A closer case but also possibly a problem is if you vaguely hoped to pay but in practical terms really did not have the ability to.

In weighing these situations, bankruptcy law has a "presumption" that your debts should be discharged. That leaves the creditor with the burden of convincing the judge that your behavior fits one of the limited grounds for not discharging the debt. If the creditor does not "defeat the presumption" and prove its case, it loses and the debt is discharged.

Creditors Must Quickly Raise a Challenge or Lose the Right to Do So

Your creditors have a very quick, and very firm, deadline to challenge the discharge of their debts. That deadline is generally 60 days after your "meeting of creditors" (the one with the bankruptcy trustee about a month after your case is filed).

When you tell us about a creditor which is saying that you will not be able to discharge a debt, we will likely be able to gauge if that threat is credible. But in some situations, we will not know for sure until after the deadline passes. That's because although most creditors make decisions based on financial costs and benefits, occasionally a creditor can have a grudge against you and challenge the discharge of its debt even if it has a weak case. This mostly tends to happen if you had a personal relationship with the creditor. Be sure to tell us either if someone directly told you they would raise a challenge, or if simply someone has an axe to grind with you. We will discuss with you the seriousness of the risk, and may take some proactive steps if warranted. And then hopefully we will all be glad when the deadline comes and goes without any challenges being made.


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