A nondischargeability action is the last thing you want to get in a bankruptcy. It means a party, either a creditor or the trustee, wants the court to deny you a discharge, either as to some debts (usually filed by a creditor) or all debts (usually filed by the trustee).
Only certain debts are discharged in Chapter 7. Some that aren’t are domestic support obligations (commonly called DSOs), student loans (except in rare cases), taxes (except in rare cases) and several debts listed under Section 523 of the Bankruptcy Code.
In the case of DSOs, student loans and taxes, the presumption is that these debts are NOT discharged, so if the debtor wants to get a discharge of student loans or taxes, she has to bring an adversary proceeding, which is a lawsuit within the bankruptcy, to establish that these debts should be discharged. On the other hand, most of the debts under Section 523 ARE presumed to be discharged unless a creditor or the trustee challenges the debts. Such a challenge is also done by way of an adversary proceeding.
The most common types of debts to which challenges are made are debts incurred by fraud; debts incurred by reason of causing intentional injury to another’s property; and debts incurred as a result of damages for driving under the influence of drugs or alcohol. There are others, but these three are the main ones. If the court upholds the challenge to any of these debts, the debtor will still have to pay them after the bankruptcy but will get a discharge of any other debts.
On the other hand, there might be a challenge made to discharge in general. This is made under Section 727 of the Bankruptcy Code and is usually made by the trustee. A trustee will only bring an adversary proceeding under Section 727 if the debtor isn’t cooperating or the trustee believes the debtor has hidden assets or falsified financial records. It’s rare that a claim is made under Section 727.
Either way, a challenge to discharge is a serious matter and one that your attorney will charge more money to defend. It amounts to a full-blown lawsuit within the bankruptcy and can take months or, in some cases, years to be resolved.
