The past two weeks, I’ve written about what the requirements are to file a chapter 7 bankruptcy. But as I wrote last week, it is one thing to be able to file a chapter 7 bankruptcy if a person is experiencing significant financial difficulty. But the reason to file is to receive a discharge of debt. So last week we looked at what a chapter 7 debtor needs to do after the case is filed to secure that bankruptcy discharge. This week we’ll wrap up the requirements to receive a discharge.
The Financial Management Course
Two weeks ago I wrote that in order to file a chapter 7 bankruptcy case, a debtor had to complete, prior to filing, a US Trustee-approved credit counseling course. These courses are typically done online or over the phone; the purpose of the course is to avail potential bankruptcy debtors with counseling regarding steps that the particular debtor can take to avoid a bankruptcy filing.
After the case is filed, in order to receive a bankruptcy discharge, a bankruptcy debtor must complete a US trustee-approved instructional course in personal financial management. This course must be completed prior to the date the bankruptcy debtor is scheduled to receive her discharge (the date is 60 days after the first scheduled meeting with the chapter 7 trustee). Failure to complete the course results in the debtor’s case being closed without a discharge.
There is are exceptions to this rule. First, the United States Trustee can determine that there is no adequate program available to the debtor. Since the financial management program is available online, over the phone, or in writing, it is difficult to imagine that a debtor exists for whom the program is “unavailable.”
Second, the requirement of completing a financial management course in order to receive a discharge does not apply for someone who is unable to complete the course due to incapacity, disability or on active duty military status in a combat zone. This second exception to the requirement of completion of a financial management class, while not common, comes up more frequently than program unavailability, mentioned above. There are cases in which the financial difficulty experienced by the debtor was caused by, or at least heavily influenced by the debtor’s diminished intellectual capacity. For individuals dealing with memory loss or dementia, the ability to make rational financial decisions regarding personal budgets can be compromised. So an older person who has spent a lifetime budgeting income and expenses might, due to physical and mental capacity changes, might unexpectedly begin to make significant impulse purchases. When this happens, family members will often step in, and in some cases it’s appropriate to file a bankruptcy case to discharge the existing debt and, quite frankly, to diminish the debtor’s ability to access credit.
If such a circumstance exists for the incapacitated debtor, the requirement to complete the financial management class can only be waived by the court - so the attorney for the incapacitated debtor has to make a motion with the bankruptcy court and set out the facts in the case. The bankruptcy judge then makes the decision whether waiver of the financial management class is allowed.
One other rare instance in which a debtor can receive a chapter 7 discharge without completion of the financial management class is when a debtor dies after the chapter 7 case has been filed, but prior to the deadline to complete the class. While the statute does not specifically except dead debtors from the exception, Minnesota bankruptcy judges have held that a dead debtor is “incapacitated” for the purpose of the statute.
Revocation or Denial of Discharge
For almost all of the people who file a chapter 7 bankruptcy case, there are no more hurdles to clear before receiving their bankruptcy discharge. There are, however, a very small number of individuals who, due to quasi-criminal activity with respect to property of the estate, intentionally false information on the chapter 7 petition or schedules, and/or false testimony at the 341 meeting, risk having their chapter 7 discharge either denied by the court (if the problems come to light prior to the date the debtor is scheduled to be discharged) or revoked by the bankruptcy court (if the misbehavior comes to light after a discharge has been entered). It’s rare that this happens, but it’s not unheard of. And it’s the big reason that anyone who is thinking about filing a chapter 7 case should fully disclose all information to their attorney - leaving important information out of conversations with a bankruptcy attorney greatly enhances the likelihood that there will be a complicating problem with receiving a discharge.
The other basis to deny a chapter 7 debtor a discharge concerns repeat filers, whose bankruptcy case was filed too soon after the debtor received a previous discharge. The rule is straightforward: a debtor cannot receive a chapter 7 discharge if the debtor filed a previous case for which the debtor received a discharge. The “wait” time is eight years if the prior bankruptcy filing was a chapter 7 or chapter 11 case, and the “wait” time is six years if the prior bankruptcy filing was a chapter 13 case. It’s important for potential debtors to understand that the clock starts running on these time periods from the date of filing. It’s when the previous case starts, not when the discharge is received that governs this analysis. Again, this potential problem is another example as to why it’s important to share all relevant information with the bankruptcy attorney, particularly if the bankruptcy case was filed in a different state, or if the debtor has changed her name in the years after the filing of the first case.
So there you have it - these are the qualifications needed to file a chapter 7 case in the “right” state and to receive a bankruptcy discharge - the discharge is the reason to file a chapter 7 case. Next week, I’ll look at what isn’t required to file a bankruptcy case, and we’ll look at the requirements to file a chapter 13 bankruptcy.
