Lasting Effect of Denial of Bankruptcy Discharge

Here is an example of the importance of being truthful on your bankruptcy petition if you file bankruptcy. A man consulted with us about filing Chapter 7 bankruptcy in Florida after he had previously filed in another state five years ago. In the previous filing, the court denied the client his Chapter 7 bankruptcy discharge because he had fraudulently misrepresented assets on this bankruptcy schedules.

I first explained that the denial of discharge was not a dismissal of his bankruptcy case. The court’s denial of a discharge for wrongdoing does not halt the bankruptcy proceeding. The bankruptcy trustee administers any non-exempt assets and then distributes them to creditors. None of the unsecured debt is wiped out (discharge) because the Chapter 7 bankruptcy discharge has been taken away because of the debtor’s misconduct.

Generally, a Chapter 7 debtor may file another bankruptcy in eight years. But, the bankruptcy code provides that a Chapter 7 bankruptcy may not discharge any unsecured debt that was listed, or could have been listed, in a prior Chapter 7 bankruptcy case in which the bankruptcy discharge was denied for any reason. The ban is permanent.

This client would never be able to file Chapter 7 bankruptcy to list any debt that was listed on his schedule in the prior bankruptcy. His only bankruptcy option is filing a Chapter 13 bankruptcy in which he pays back a portion of the debts over a period of time.