Denial of Discharge (Bankruptcy) Law and Legal Definition

Denial of discharge is a penalty for debtor misconduct. The debtor can be denied a discharge of all of his/her debts if the court finds, after trial, that the debtor committed certain acts deemed incompatible with the "honest but unfortunate debtor”. 11 U.S.C. 727 enumerates the grounds on which the debtor's discharge may be denied. They include transferring, concealing or destroying assets or financial records; making a false oath on the schedules or under oath in the case; or failing to keep books and records from which the debtor's financial condition can be ascertained.

Denial of discharge affects the debtor's liability to all creditors, whether or not the debtor committed some fraudulent act with respect to that creditor. It does not stop administration of the case, liquidation of assets and recovery of avoidable transfers. They continue for the benefit of creditors. The trustee proceeds to gather and liquidate the assets of the estate, so the debtor loses not only the non exempt assets but any chance of ever discharging the debts in bankruptcy.

When the debtor's discharge is denied, the debts that could have been discharged in that case cannot be discharged in any subsequent bankruptcy.