When you can no longer pay your debts, bankruptcy offers you a solution to escape those debts. Those you owe money may not be so enthralled with your decision to file. Does that mean you need to worry about a creditor trying to block your bankruptcy filing?
Creditors cannot stop you from filing for personal bankruptcy
The good news is the creditor (someone you owe money to) cannot prevent you from filing for personal bankruptcy. The bad news is they are not entirely without a voice.
When you file for bankruptcy, you apply to the court to grant it. It is the judge who says yes or no. If one of your creditors is not happy about having your debt to them included in the filing, they need to explain to the court why.
An adversary proceeding allows creditors to appeal against a bankruptcy
An unhappy creditor needs to file an adversary proceeding. They cannot do this just because they want their money. They can only do so if they believe you defrauded them in some way. Here are some examples:
- You racked up debt before filing: The month before filing, you maxed out your credit card to take a vacation. Or you replenished your wardrobe with designer clothes figuring that if you are going to go bankrupt, you will do it in style.
- You took on new debt to clear old debt: Some debts such as student loans are typically not covered in bankruptcy filings. Taking out a new loan to clear your student debt, then filing for bankruptcy to wipe out the new loan may seem cunning. The lender may disagree and challenge it.
Provided that you did not do anything untoward, creditors should have no reason to object. Lenders know the risks when they hand out money. Bankruptcy may be the only way to escape their clutches. You can find answers to other questions you may have about bankruptcy here.