I was recently asked to discuss how the heck you could challenge a person filing for bankruptcy. The most obvious answer is by showing they are hiding money. Nail them with that, and it's "game over." However, often, that is not so easily proven, nor necessarily the case. There are so many warrens in bankruptcy court, that it is much easier to hide than most people think. Enter the 523 exceptions!
How does it work?
If you are passed the filing deadline for exceptions to discharge, you will need to show good cause as to why the date was missed. Discharge is covered under 11 USC 523. There are six of them that matter most in commercial context:
- 523(a)(1): Taxes and duties exception
- 523(a)(2): obtaining loans, credit, or money by (a) false pretense as to financial position, or (b) through writing (applications)
- 523(a)(3): Failure to list creditor in a timely fashion in bankruptcy proceedings, such that the creditor could not contest
- 523(a)(4): fraud or defalcation of a fiduciary (or fiduciary duty)
- 523(a)(5): support (child/alimony) obligations
- 523(a)(6): willful or malicious injury
There are additional ones, but they get really obscure (home owner associations dues, and government obligations).
Generally, for corporate battles (partnerships, etc.), it ends up being under 523(a)(4). For debts incurred through fraud – 523(a)(2). For punitive damages or exemplary damages mandated by a Court – 523(a)(6).
I’ve won on 523(a)(6), and lost on 523(a)(2) and reached a draw (Settlement) as to 523(a)(4).
Here, however, because the filing is untimely, you would have to show good-cause to re-open the window. Service is popular, as is failure to notify the creditor at all. Also, manifest unjustice would be a good argument, but I don’t see it in your case.
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