I love questions like this. My standard answer (if I am feeling obnoxious) is, “Well, I don’t know. How would that happen?” The standard response to that is, “Well, I don’t know. You’re the lawyer.”
Yea, I’m the lawyer; and the fact is, it is possible to have a discharge denied — but that isn’t really the question. The real question has nothing to do with the Bankruptcy Code and everything to do with the fear of feeling backed into a corner, surrounded and overwhelmed. This is what I classify as a monster under the bed question, because no matter how old we get, we still have irrational fears that keep us up at night and vanish instantly when hit by the beam of a flashlight. So, here’s my flashlight.
To be eligible to file for bankruptcy you must meet certain criteria. The most well known of these is that to file a Chapter 7 Bankruptcy, you must pass the so-called Means Test. You also must be insolvent; but there are three insolvency tests, and if you don’t meet at least one of them, you aren’t talking to a bankruptcy attorney.
Assuming that you are a human being (and not, say, a non-business trust) and you are not able to pay your bills as they come due, you are going to be eligible to file some chapter of Bankruptcy. Which chapter may depend on other things, but you will talk to your attorney about those in detail — and this isn’t what people are afraid of.
For most people this really is a monster under the bed fear. What if the Court just says “NO! Not YOU! Anybody else, ok; but not YOU!” Doesn’t happen that way. If you are eligible to file, you are eligible to file.
The snag with answering this question is that it is possible to file a bankruptcy successfully and have your discharge denied at the end. Those are truly extraordinary cases (and not in a good way). In my 22 years of practicing law, I have never had a client had his discharge denied. It is a great big, bad thing that doesn’t happen easily.
So, what does that mean? First of all, it is fairly common for certain debts to be excepted from the discharge. This is not the same as a denial of discharge. Most people know that recent taxes, child support and student loans aren’t going away just because they filed for bankruptcy — and they are generally right. However, if you incur a debt with the expectation of discharging it in bankruptcy (that is called fraud), and the creditor complains about it to the Bankruptcy Court (by filing something called an Adversary Proceeding) and wins; then, that particular debt will be excepted from the discharge, and the Debtor will still have to pay it.
I can hear the chorus now, “But, I’m a good person. I didn’t plan this. This debt is all years old, and if I hadn’t lost my job/gotten divorced/ or gotten sick I wouldn’t be here. Well, then you shouldn’t have to worry about this. Again, the real fear is that the world won’t see you for who you really are; but only through this stigma of bankruptcy.
Still, this isn’t really what my clients are afraid of. They aren’t afraid of having to pay their child support or that one credit card that they used right before they filed (knowing good and well they were filing and that they would still have to pay it).
No, my clients are afraid of filing the Bankruptcy and just being told NO. Go away. You aren’t good enough, and that doesn’t happen — well, not exactly.
What can happen is a Debtor can get caught hiding assets, not telling the truth, concealing income, not disclosing things he doesn’t want the Trustee to know about. BOOM! Thou shalt NOT lie, cheat or steal in connection with a bankruptcy. Don’t even go there. That means if you have a nonexempt asset you don’t want the Trustee to administer, well, talk to your lawyer about your legal options. Just deciding not to disclose it (i.e., Oh, I don’t want to list that) is not a valid response to your lawyer. Not only will that cost you far more than honesty up front, it can cost you your discharge. It can also cost you a criminal prosecution and an all-expense paid vacation to a Federal minimum security “camp”. Don’t go there, because I promise you, your lawyer has no intention of sharing your jail cell.
So, be the person you know yourself to be — honest, above board and cooperative. A Debtor has a duty to disclose all assets, expenses, debts, liabilities and financial transactions. Keep your records. Produce anything requested of you. If the Trustee wants to see something, hand it over WITH A SMILE.
The name of the Bankruptcy game is disclosure. It is the ultimate flashlight, and the world is a lot less scary in the light.