By Ryan C. Wood
The technical term for taking away a discharge after being granted by the bankruptcy court is revocation. Yes, even though the court signed your order of discharge it can still be taken away under certain circumstances. What are those circumstances?
First we must look at section 727 of the Bankruptcy Code. Section 727 governs the granting of a discharge of debts. There are a number of grounds that provide when someone cannot receive a discharge. This article does not discuss those. An adversary proceeding or lawsuit must be filed by a bankruptcy attorney to prove that one of these grounds exists and therefore someone filing for bankruptcy should not receive a discharge. This article focuses on the grounds under which a trustee, a creditor or the United States Trustee may ask the court to take away a discharge of debts already granted.
Section 727(d) provides: that on request of the trustee, a creditor or the United States trustee, after notice and a hearing the court shall revoke a discharge granted under Section 727(a) if:
(1) such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge; (2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee; (3) the debtor committed an act specified in subsection (a)(6) of this section; or (4) the debtor has failed to explain satisfactorily— (A) a material misstatement in an audit referred to in section 586 (f) of title 28; or (B) a failure to make available for inspection all necessary accounts, papers, documents, financial records, files, and all other papers, things, or property belonging to the debtor that are requested for an audit referred to in section 586 (f) of title 28.
There are limits though. Section 727(e) provides the trustee, a creditor, or the United States trustee may request a revocation of a discharge— (1) under subsection (d)(1) of this section within one year after such discharge is granted; or (2) under subsection (d)(2) or (d)(3) of this section before the later of— (A) one year after the granting of such discharge; and (B) the date the case is closed. See In re Bowman, 173 B.R. 922 (9th Cir. B.A.P. 1994).
The most common ground for a discharge to be revoked is if the discharge was obtained through the fraud of the bankruptcy filer. Actual fraud must be proven. A creditor sometimes is not aware of the filing of a bankruptcy case and then becomes aware and seeks to have a discharge revoked. It is an uphill battle and can be very expensive though. Also there is a time limit. Note Section 727(e) limits revocation of a discharge to within one year after such discharge for violations under 727(d)(1) or under (d)(2)/(d)(3) the later of one year after such discharge or the date the case is closed. Bankruptcy lawyers should be aware that if the Chapter 7 case is left open by a Chapter 7 trustee the one year limitation under 727(e) for grounds to revoke a discharge under (d)(2) or (d)(3) will not become effective until the case is closed.
