What happens to a dishonored check if the person files for bankruptcy?

Full question:

I have a dishonored check for $35k. What if the person files bankruptcy and put this amount on it. Will she be still liable to pay the amount or not. What if I file report before she files bankruptcy?

• Category: Bankruptcy
• Date: 04/07/2025
• State: Idaho

Answer:

If a vendor receives a check for payment of a debt and the check is not honored, the debt still exists. This debt must be listed among the creditors in any bankruptcy petition filed by the debtor.

If the debtor issues a check knowing there are insufficient funds, this could be considered fraud. In such cases, the vendor may be able to have their claim survive the bankruptcy discharge. To do this, the vendor must file a lawsuit in the bankruptcy court to have the debt declared nondischargeable or object to the debtor's discharge.

Common reasons for excluding a vendor's debt from discharge include:

• Fraudulently incurred obligations
• Fiduciary fraud or embezzlement
• Willful and malicious acts

The Bankruptcy Code specifies that the debtor must be an individual for these provisions to apply. If the vendor sold to a corporation or LLC, they may still have a claim against an individual if they can establish an alter ego claim against the insider of the corporation.

If the debtor obtained property through false pretenses or fraud, that claim may also survive discharge. The vendor must prove either oral or written fraud, showing that they reasonably relied on the debtor's misrepresentation.

To object to a debtor's discharge, a vendor can base their objection on several factors, such as:

• The debtor transferred or concealed property within one year before filing
• The debtor failed to keep proper records
• The debtor made false statements or withheld information
• The debtor cannot explain property loss
• The debtor has received a discharge in a prior bankruptcy within six years
• The debtor had a discharge denied in a previous case

However, it is unlikely that grounds exist to deny a discharge based solely on an NSF check. Many grounds for objecting to a discharge may also involve federal crimes. Vendors must act quickly, typically within sixty days after the first Meeting of Creditors, to commence these claims.