Bankruptcy can be a confusing process for clients, and sometimes people ask whether their chapter 7 bankruptcy will be “approved”, or whether their case may be “denied”. In general, an honest, well prepared case that meets the requirements of full disclosure and is accurately prepared will be approved and an order will enter from the Bankruptcy court cancelling your debts.

People’s understanding of the legal system sometimes includes a belief that there is a “winner or a loser”, or that a person is either “guilty or innocent”—terminology common in some legal proceedings, but not applicable to chapter 7 bankruptcy.

Chapter 7 bankruptcy is a legal remedy available to allow a person or family or business entity to eliminate their debts if they are unable to pay them. A petition is filed asking for the relief from debt, called a “discharge order”, other documents are filed disclosing all debts and assets and other financial affairs of the person filing, and after the case is processed (see other blog posts describing the Chapter 7 bankruptcy process), a discharge order is entered cancelling all dischargeable debts forever.

There is an opportunity within the proceeding for a creditor or the Court or the United States Trustee to challenge the dischargeability of a debt or to challenge the bankruptcy itself, but these challenges are extremely rare in our office, and generally must be based on fraud in obtaining a debt, a debt incurred by willful or malicious conduct, or fraud in the bankruptcy itself.

What this means, in my experience, is that if a person if forthright and honest in every aspect of the filing, and is truly unable to pay their debts, almost all filers will receive a discharge without challenge. Of course, there are exceptions in extraordinary circumstances and this issue can only be fully analyzed after consultation with an experienced bankruptcy attorney after reviewing the facts of your particular circumstances.

But, in general, there are no winners or losers or guilty or innocent parties to a bankruptcy, only parties who need the bankruptcy system, both debtors and creditors, to resolve problems forever where there is no money to pay the debts as due.

Peter's Blog