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Personal and Business Bankruptcy: Chapter 7, Chapter 11, Chapter 13

Debts Can’t Be Discharged in Bankruptcy if Creditor Proves Debt Incurred through Act of Fraud

You may have heard of cases in which someone lied about their income and financial information on credit card applications, racked up loads of credit card debts and then got all that debt discharged in bankruptcy. While it’s possible that this type of scenario occurs occasionally, it’s certainly not commonplace and people probably attempt it more often than they are successful.

There are two separate concepts here. The first is that of a denial of dishchargeability, which disallows discharge of one particular creditor's debt against a debtor. Secondly, there is a denial of discharge which disallows discharge of any debt owed by the debtor. The later occurs when the debtor commits an overt act of dishonesty in filing for bankruptcy, i.e. false oaths on sworn schedules or acts to hinder, delay or defraud creditors. Denial of dischargeability tends to occur through actions related to a single debt or creditor, such as many of the areas discussed below. A denial of dischareability for one debt does not affect whether other debts can be discharged.

U.S. bankruptcy laws prohibit the discharge of any debt incurred through an act of fraud, deception or false pretenses on behalf of the debtor. This includes debt for credit cards obtained by providing false information. Bankruptcy laws also require bankruptcy courts to notify all of a debtor’s creditors that discharge of a debt owed to them is being sought through bankruptcy. If the creditor knows or circumstances surrounding the debt suggest that the debt was incurred through deception or fraud, they have the opportunity to file an adversary proceeding, known as Objections to Discharge, and contest discharge of the debt. If they are successful, the debtor will still have to pay that debt.

Proof of Fraud is Burden of Creditor

When a creditor claims a bankruptcy debtor incurred a debt through fraud or deceptive practices, the creditor must prove their claim through a preponderance of evidence, which means the court is convinced it is more likely that the debt was incurred through fraud than not. The debtor does not have to prove they didn't incur the debt fraudulently.

Sometimes a creditor will file objections to discharge of a debt even though the debt really wasn't incurred fraudulently. Sometimes there are enough coincidences in the debtor’s situation to raise flags for creditors and they just want an honest chance to assess the circumstances and determine whether fraud was involved. But it’s not unheard of for a creditor to object as a tactic to avoid the discharge regardless of whether fraud was really involved. In either case, if the creditor can’t provide enough proof that fraud took place, the bankruptcy judge will allow the debt to be discharged.

Creditors have 60 days from the first meeting of creditors in the bankruptcy process to file their Objections to Discharge. This period can be extended if they file a request for extension within that 60-day window, which is usually what occurs. If a creditor misses that 60-day deadline, or the extended deadline if an extension was requested, it is unlikely the bankruptcy court will allow the objections to be brought. However, if a creditor receives a judgment from the state court against the debtor after the 60-day deadline and the question of fraud was raised in court, then the bankruptcy court may still allow the adversary proceeding to be brought. The court may also allow the adversary proceeding to be brought if a creditor can establish that there was an informal claim of record regarding the alleged fraud in the bankruptcy court that served as an equivalent of a timely complaint.If a judgment is granted but no mention of fraud was raised in court, that judgment alone will not be enough to avoid the discharge.

If a creditor successfully proves their case in bankruptcy court and the debt is declared non-dischargeable because it was incurred through fraudulent acts or deception, the ruling will only affect that particular debt. All other debts of the bankruptcy debtor will still be discharged, unless they are also proved to be incurred through debt or it is proved that the whole bankruptcy was filed fraudulently.

What Can Qualify as a Debt Incurred Through Fraud?

The following are examples of that can be construed as having been incurred through fraudulent acts, deception or false pretenses. This list is not exhaustive:

  • Credit cards or loans obtained by supplying false financial information an application
  • Credit cards or loans obtained by using another person’s identity information (identity theft)
  • Use of credit cards or credit lines when the debtor knew or should have known they did not have the means to repay the debt
  • Use of credit cards or credit lines with no intention of repaying the debt
  • Act of fraud, conversion, embezzlement, larceny, breach of fiduciary duty or willful and malicious injuries to a person or property that resulted in damages to that person or the owner of the property
  • Any circumstance in which the debtor received money or property through false pretenses, false representation or actual fraud and the lender experienced damages after reasonably or justifiably relying on the debtors representation (i.e. got stuck with the bill)

The timing of debts and bankruptcy filings often plays a large role in determining whether fraud took place in incurring the debt. Large purchases, purchase of luxury goods, large cash advances on credit cards, or going over the credit limit on purchases in close proximity to the date on which the bankruptcy was filed are good indications that the debtor never intended to repay the debt and therefore acted fraudulently.

Defend Yourself Against Unscrupulous Objections to Discharge

As noted above, sometimes creditors claim that fraud was involved in a debt simply in hopes of avoiding a discharge even if the debt was incurred honestly. Having an experienced bankruptcy attorney to represent you will minimize unscrupulous attempts to avoid discharges and increase your chances for successfully discharging your honest debts.

Maryland attorney John Burns and his firm have experience fighting claims of fraud against bankruptcy debtors and can help ensure that all your honest debts get discharged. Call our office at 301-441-8780 to schedule an appointment or email me at

Categories: Maryland Bankruptcy

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