Three Reasons Why Creditors Challenge A Debtor’s Bankruptcy

June 12th, 2010 by Reed Allmand

Why Creditors Challenge Bankruptcy FilingWhile it doesn’t happen often, sometimes a creditor may challenge a debtor’s Chapter 7 bankruptcy or Chapter 13 bankruptcy filing.  Below are some of the most common reasons a creditor might challenge a bankruptcy filing:

  1. The creditor has noticed that the debtor made charges on their credit card right before the debtor filed for bankruptcy. Even if the debtor intends to file a Chapter 13 bankruptcy, unless they propose to repay all of the charges on the credit card, the creditors may motion the bankruptcy court to make those recent charges nondischargeable in bankruptcy. Creditors do not want to take the chance that the debtor will charge up their credit card and then have those charges immediately discharged in bankruptcy.
  2. The creditor believes that the debtor is hiding assets or has wrongfully transferred assets to another party before filing bankruptcy in an attempt to avoid paying the creditor.  If a debtor transfers cash or property to someone else right before filing bankruptcy, the bankruptcy court may see this as fraud and charge the debtor with filing bankruptcy in bad faith.  If the bankruptcy court finds the debtor guilty of filing bankruptcy in bad faith or of bankruptcy fraud, the debtor’s bankruptcy case will be dismissed and they could face jail time.
  3. The creditor believes that the debtor is favoring one creditor over another.  For example, if a debtor pays off one credit card right before bankruptcy while giving another credit card company no payments, the creditor could claim that the debtor is favoring one debtor over another.  This most often happens when a debtor repays a family member or friend who loaned them money right before they file bankruptcy. If the bankruptcy court finds that the debtor is favoring one debtor over another the court can demand that the payee return the money to the bankruptcy estate.

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About Reed Allmand

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Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."

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