A discharge in bankruptcy is the final step of the bankruptcy process, and for many people, the reason to file bankruptcy in the first place. A debt discharge legally prevents a bankruptcy filer from having to ever pay certain debts.
Generally speaking, once you receive a debt discharge, you have no obligation to repay the debts included in your bankruptcy.
Much like the automatic stay that is issued by the bankruptcy court at the beginning of a bankruptcy, the debt discharge is a court order that prevents creditors from collecting on debts. Any collection efforts, such as phone calls or letters demanding payment, are seen as a violation of the court order, and could lead to legal action against the creditor.
Not all debts can be forgiven in bankruptcy, and some debts may continue after bankruptcy, depending on which bankruptcy chapter is filed.
Chapter 7 bankruptcy cases typically move relatively quickly, and generally speaking, a person filing Chapter 7 may expect their final discharge within four-to-five months after filing.
Most Chapter 7 cases involve unsecured debts, such as credit cards or medicals, which are not tied to any physical property. These types of debt are generally discharged fairly easily, unless a creditor has grounds for objection.
If a Chapter 7 bankruptcy involves secured debt, such as a home or car loan that is not protected by state or federal exemptions, the debtor may be able to "reaffirm" the debt, or agree to pay the debt and exclude it from the bankruptcy.
The debtor may also surrender the property to the trustee to be liquidated.
Chapter 13 bankruptcy cases, on the other hand, move much more slowly. In a Chapter 13 case, the debtor enters into a payment plan with the bankruptcy court that takes three-to-five years. The bankruptcy discharge is issued at the end of this period, as long as other requirements are met.
At the end of the payment period, the bankruptcy court will typically review to agreement to ensure that all creditors have received a fair payment before issuing a discharge.
Chapter 13 bankruptcy also allows for a hardship discharge for debtors who become unable to continue their payment plan.
However, the bankruptcy courts have stringent qualifications for the hardship discharge to prevent abuse. In order to receive a hardship discharge, the debtor must prove:
The requirements to receive a debt discharge depend upon the chapter filed, the types of debt, and specifics of the case.
Generally, the main requirements to receive a debt discharge from the bankruptcy courts are the Credit Counseling Course, which must be taken before filing, and the Debtor Education Course.
These two courses were established by the BAPCPA law of 2005 to ensure debtors know their options before filing and are able to avoid debt after filing bankruptcy.
In a Chapter 7 case, the debtor may be required to liquidate, or sell, property and other assets. However, most debtors who file under Chapter 7 are able to keep the majority of their assets through federal and state bankruptcy exemptions.
In a Chapter 13 case, the debtor must agree to a three-to-five payment plan and pay all disposable income to the bankruptcy trustee, who then distributes the funds to creditors.
There are certain types of debt that cannot be discharged in bankruptcy, and that the debtor may be required to pay after bankruptcy.
Debts that cannot be forgiven depend on the chapter of bankruptcy filed, and include:
Bankruptcy can provide a fresh financial start and may help free you from overwhelming debt and harassing creditors. The bankruptcy discharge might be your ticket to a debt-free life.
If you're ready to file bankruptcy, or if you have questions about how bankruptcy may help your specific financial situation, you can connect with a local bankruptcy lawyer. Simply fill out the form below or call 877-349-1309 today to speak with an attorney near you.
The above summary is by no means all-inclusive and is not legal advice. Laws may have changed since our last update. For more information on bankruptcy debt discharge, contact a local bankruptcy attorney.