Bankruptcy lets individuals and businesses get rid of debts or repay debts according to a payment plan, depending on the type of bankruptcy used, such as Chapter 7, Chapter 11 or Chapter 13.

The person or business that has filed a bankruptcy case is called the debtor. A creditor is any person or business owed a debt on the date the bankruptcy case was filed.

Discharge

A bankruptcy discharge is a court order that eliminates certain debts. A discharge lets an honest filer begin a new financial life. A filer who is granted a bankruptcy discharge is no longer responsible for the payment of debts included in the discharge.

Any of a filer's property that isn't exempt property is converted into funds, which the bankruptcy trustee in the case uses to pay creditors. When there's little or no property, creditors may receive nothing. A Chapter 7 discharge frees the filer from the obligation to pay the discharged debts and it prevents creditors from continuing attempts to collect the debt.

Objections to Discharge

Sometimes the trustee or a creditor will object to the filer's discharge, claiming he or she committed certain dishonest acts. If the court finds the objections valid, the filer can be denied a discharge of all of his or her debts. Some of the more frequently used grounds for objections to discharge include:

  • The fraudulent transfer or concealment of property
  • Failure to keep or preserve books or records
  • False oath or account
  • Failure to explain loss of assets or insolvency

Failing to Keep or Preserve Records

A discharge may be denied if the filer doesn't keep or preserve books or records. This includes doing any of the following to recorded information:

  • Concealing
  • Destroying
  • Mutilating
  • Falsifying
  • Failing to keep or preserve

Documentation includes books, documents, records and papers from which the filer's financial condition or business transactions can be discovered.

A Debtor's Actions Matter

Failing to preserve books or records must be caused by an action or failure to act. It can also be caused by someone the filer is legally responsible for, such as an agent.

If the destruction, mutilation, falsification or concealment is the result of an accident, a discharge won't be denied. Also, if it is caused by the act of a stranger or third person the filer has no control over, a discharge won't be denied.

Consumers Have No Duty to Keep Records

Generally, consumer debtors have no obligation to keep books. On the other hand, a filer who is a sophisticated business person must keep books.

Keeping Records

The records must reveal the filer's present financial condition. Also, the records must allow creditors to follow the filer's business transactions for a reasonable period in the past. It's enough if the books and records are kept with a fair degree of accuracy and in a way expected for the business. The absence of a general ledger isn't a reason for denying a discharge if there are other books or records showing the filer's financial condition.

Loss of Records and Chaotic Recordkeeping

A discharge won't be denied when records have been lost or destroyed through no fault of the filer. Also, a crude or careless method of keeping books may not always be enough to prevent a discharge. Even if no books are kept, if financial condition and business transactions can be discovered from available records, a discharge will probably be granted.

Questions for Your Attorney

  • My agent was supposed to keep the books but failed to do so - can this be a ground for denial of a discharge?
  • My business records were destroyed in a fire - can my lack of records for a certain period due to their loss in the fire be the basis for a denial of discharge?
  • I don't own a business nor do I keep any financial records - can I be denied a discharge for a lack of records?