Bankruptcy is a process where someone in financial trouble gets a second chance. Contrary to popular belief, it is not a get out of jail free card. Bankruptcy is an organized process that requires payment of those debts someone can afford to pay and legally excuses them from paying the rest. Sometimes certain debts are declared to be non-dischargeable. In those instances the debt must be repaid. The bankruptcy code at section 523 lists classes of debt that cannot be or are difficult to discharge; among those are student loans, taxes and support payments ordered by a court. Also listed in section 523 are other types of debt that will be discharged unless a creditor takes action to prevent it. The portions of that code section that apply say:
(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; or
(i) for purposes of sub-paragraph (A)—
(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
(II) cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable; and (ii) for purposes of this sub-paragraph—
(I) the terms “consumer”, “credit”, and “open end credit plan” have the same meanings as in section 103 of the Truth in Lending Act; and
(II) the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor;
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity;
(1) Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.
(d) If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney’s fee for the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust.
The process for avoiding the discharge of these debts, which will be discharged unless a creditor files a lawsuit under Bankruptcy Code Section 523, is set out in Bankruptcy Rule 4007. It says:
Rule 4007. Determination of Dischargeability of a Debt
(a) Persons Entitled To File Complaint. A debtor or any creditor may file a complaint to obtain a determination of the dischargeability of any debt.
(b) Time for Commencing Proceeding Other Than Under §523(c) of the Code. A complaint other than under §523(c) may be filed at any time. A case may be reopened without payment of an additional filing fee for the purpose of filing a complaint to obtain a determination under this rule.
(c) Time for Filing Complaint Under §523(c) in a Chapter 7 Liquidation, Chapter 11 Reorganization, Chapter 12 Family Farmer’s Debt Adjustment Case, or Chapter 13 Individual’s Debt Adjustment Case; Notice of Time Fixed. Except as otherwise provided in subdivision (d), a complaint to determine the dischargeability of a debt under §523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under §341(a). The court shall give all creditors no less than 30 days’ notice of the time so fixed in the manner provided in Rule 2002. On motion of a party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.
(d) Time for Filing Complaint Under §523(a)(6) in a Chapter 13 Individual’s Debt Adjustment Case; Notice of Time Fixed. On motion by a debtor for a discharge under §1328(b), the court shall enter an order fixing the time to file a complaint to determine the dischargeability of any debt under §523(a)(6) and shall give no less than 30 days’ notice of the time fixed to all creditors in the manner provided in Rule 2002. On motion of any party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.
(e) Applicability of Rules in Part VII. A proceeding commenced by a complaint filed under this rule is governed by Part VII of these rules.
So, trying to cut through all the legalize in the statute, what we find is that if a creditor believes the debtor incurred the debt through false pretenses, false representations or fraud, or by submitting a false written financial statement intending that the creditor rely on it, or by committing fraud while acting as a fiduciary, or embezzling money or just plain stealing it, or if the debtor willfully and maliciously injured an entity or its property the creditor has to take steps to keep that debt from being discharged in bankruptcy. That means the creditor has to file a lawsuit in the bankruptcy case claiming a right to do so under 11 USC 523a, and that lawsuit has to be filed no more than 60 days after the day initially set for the meeting of creditors. The bankruptcy notice the creditor receives in the mail tells the creditor when the meeting of creditors is set and also what the last day to file an objection to discharge is. The dates are hard and fast, a miss by one minute is fatal. The Bankruptcy Court will grant an extension of the deadline to file the lawsuit, but that request for extension has to be made in writing, state good cause and it must be filed before the 60 day period runs.