When a borrower files Chapter 7 bankruptcy, they are required to inform the court of all liabilities. These liabilities/debts include any returned checks. Returned checks, sometimes called bad checks, represent an unpaid debt. As an outstanding debt, they are eligible for discharge unless the creditor proves fraud on the part of the debtor.
A Quick Overview of Chapter 7 Bankruptcy:
Shortly after a Chapter 7 bankruptcy filing, a bankruptcy trustee is assigned to the case. All nonexempt assets are disclosed to the trustee who handles the liquidation of assets and distribution of funds to the filer’s creditors. Any remaining debts left unpaid after the liquidation of assets are included in the bankruptcy discharge. The bankruptcy discharge removes all responsibility to pay for the bankruptcy filer. They are no longer liable for the debts.
Discharge of Bankruptcy and Returned Checks:
Sometimes consumers write checks that later bounce or are returned unpaid. These unpaid checks constitute a debt that can be discharged in a Chapter 7 bankruptcy. When an unpaid check is included in a bankruptcy case, the individual the debtor wrote the check to becomes the “creditor.” As a creditor, they can request that the bankruptcy court declare the returned check not to be discharged. If the court approves the request to designate the check debt non-dischargeable, the bankruptcy filer would still be liable for the amount after receiving their bankruptcy discharge. In most cases, the court will only approve this type of creditor request of they can prove that the bankruptcy filer intentionally wrote a bad check. In most cases, this would mean that the check was written against a closed checking account. Very, very few NSF checks meet this requirement. It is common that debtors are afraid to file bankruptcy because they have a payday loan and they gave a NSF check to the payday lender and the check has bounced. Those types of checks are not the kind of checks that create problems. The state law excludes these checks from being considered as fraudulent as NSF checks.
If you have other questions about what types of debt can be discharged in bankruptcy or you need help filing bankruptcy, please don’t hesitate to get in touch. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only office in Chattanooga with two. You are in good hands with Kenneth C. Rannick P.C.