Here, the debtor filed a Chapter 7 bankruptcy and an Order of Discharge was entered with the Court. Thereafter, the bank filed a Complaint with the Bankruptcy Court to revoke the debtor’s discharge.

The bank alleged in its Complaint that shortly prior to the bankruptcy filing, the debtor sold an asset and applied the sale proceeds to a debt jointly held between the debtor and the company in which he was an executive officer.

The Complaint filed with the Court was not one seeking to obtain a nondischargeable debt for the bank, but rather sought to totally revoke the debtor’s discharge as to all of his obligations.

The Court found that the bank failed to allege it did not know of the sale of the asset until after the Court entered the Order of Discharge. The Court implied that the bank should have filed to exempt the debt from discharge and should not have filed to revoke the discharge.

In order to “revoke” a discharge, the creditor must demonstrate that the debtor’s discharge itself was obtained through fraud, and the creditor did not know of the fraud until after the discharge was granted.

Here, the bank failed to assert its lack of knowledge of the fraud and could not prove actual fraud on the debtor’s behalf. The Court ruled for the debtor. NCNB Texas National Bank v. Tommy Hayes (Bkrtcy. E.D. Tex., Case Nos. Ty-89-61437 and A-91-6060).

Author: Charles R. Harroun, Attorney at Law