Bankruptcy/Debtor-Creditor Rights Blog

THE COURT’S ROLE IN DETERMINING WHETHER A DEBTOR’S WAIVER OF DISCHARGE IS EFFECTIVE

Posted March 29, 2010

Author: Chris A. McNulty

Debtors may not be able to obtain a waiver of discharge as easily as once thought.  The Eighth Circuit Bankruptcy Appellate Panel’s (the “BAP”) decision in In re Asbury to allow bankruptcy court’s to consider the best interests of the parties before approving a waiver of discharge may frustrate the attempts of debtors trying to escape bankruptcy unscathed.  423 B.R. 525 (8th Cir. B.A.P. 2010)  Based on this holding, if the court finds that the parties’ interests will not be better served outside of bankruptcy then it does not have to approve the waiver of discharge.

            In In re Asbury, the debtors filed a voluntary Chapter 7 bankruptcy petition with claims in excess of $11 million.  Creditors subsequently filed a number of adversary proceedings against the debtors.  The debtors tried to get out of the bankruptcy asserting that they did not have the funds to litigate all of the adversary proceedings.  The bankruptcy court denied the debtors’ attempted waiver of discharge finding that the debtors did not clearly understand the legal consequences of a waiver, and the waiver would prejudice the creditors.  The debtors appealed, arguing that the bankruptcy court exceeded the scope of its authority under §727(a)(10) by considering the best interests of the parties.

            The BAP upheld the bankruptcy court’s denial of the debtor’s waiver of discharge stating that once a debtor chooses to deal with his creditors in the bankruptcy arena, the bankruptcy court has a duty to protect the interests of both parties, not just the debtor’s.  BAP refused to allow the debtor to waive his discharge in an effort to avoid the perceived consequences of his bankruptcy filing and the subsequent adversary proceedings.

« BACK