What is a Bankruptcy Discharge?

erase-debtWhen a bankruptcy discharge is entered, the debtor is released from all personal liability for certain types of debts. This means that under the law, the debtor is no longer legally required to pay any debts that are discharged. The discharge prohibits the debtor’s creditors from pursuing further collection efforts on any discharged debts. This means they cannot pursue legal action, call, write or otherwise harass the debtor for payment. If a debtor has secured liens, however, these secured creditors can pursue efforts to enforce their lien to recover the property secured by the debt if payment if a debt has not been reaffirmed and payments are not being made.

The purpose of filing bankruptcy is to give an individual a fresh start. In most instances, the court will grant the debtor a discharge; however, there are some exceptions. (See 11 USC Section 727(a)(1).). You should seek legal advice if you have any questions about whether or not your debts are dischargeable.

A discharge in bankruptcy is based upon several things – the type of bankruptcy filed and the bankruptcy timing process itself. In a chapter 7 (liquidation) case, for example, a discharge is usually entered by the court once the expiration of the time fixed for filing dischargeability complaints or motions to dismiss has passed. (60 days following the first date set for the creditors’ meeting). Based on this timeline, a discharge is usually entered about four months after the date the debtor files the Bankruptcy Petition.

In Chapter 13 cases, the court usually enters a discharge shortly after the debtor has completed all payments required under their plan. Since a chapter Plan may provide for payments to be made over three to five years, a discharge would not occur until after the Plan has been completed.

A discharge will also not be entered until the debtor completes “an instructional course concerning financial management.” Every debtor must complete this course, with a few exceptions, such as if there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone. If the debtor fails to timely complete this class and file the appropriate form with the court, the court will dismiss the case without a granting a discharge.

The Bankruptcy Court clerk will mail a copy of the order of discharge to the debtor, all creditors, any attorneys in the case and the trustee. The discharge notice merely informs creditors that a discharge has been entered but does not specify which debts the courts deems to be non-dischargeable.
Not all debts are discharged and debts discharged vary under each chapter of the Bankruptcy Code. The Code specifically excepts various categories of debts from the discharge granted to individual debtors. Debts that individuals cannot discharge include child support, alimony, student loans, debts from intentional injury, drunken driving and some taxes. Other debts may not be discharged if the debtor committed fraud, embezzlement or obtained credit with a false written statement. Although a few other miscellaneous types also are not discharged, most common debts such as credit card, medical bills, personal and check cashing loans, repossession deficiencies and money judgments are normally discharged in Chapter 7 cases.

There are 19 categories of exceptions to discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13. The most common types of nondischargeable debts are:

  • Certain types of tax claims,
  • Debts not set forth by the debtor on the lists and schedules the debtor must file with the court,
  • Debts for spousal or child support or alimony,
  • Debts for willful and malicious injuries to person or property,
  • Debts to governmental units for fines and penalties,
  • Debts for most government-funded or guaranteed educational/student loans or benefit overpayments,
  • Debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated,
  • Debts owed to certain tax-advantaged retirement plans, and
  • Debts for certain condominium or cooperative housing fees.

If you have any questions regarding the dischargeability of a particular debt, you should speak to an attorney. Many attorneys offer free consultations.