A bankruptcy discharge releases the debtor from personal liability for certain kinds of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged.
When a discharge in bankruptcy occurs, it signifies that the proceeding is complete and that any dischargeable debt is no longer the debtor’s obligation. None of the creditors whose debts were discharged are able to pursue any other course of action to collect on the debt. This does not apply to secured debts that are still owed. If you fail to make payments toward satisfaction of these debts, those creditors can still pursue court action and collection.
When the Discharge Occurs
When a discharge occurs depends on the type of bankruptcy that was filed. A discharge in a Chapter 7 occurs after the time for creditors to dispute or object to a dischargeable debt has expired. Creditors have 60 days after the 341(a) meeting to file their objections. If none are filed, then the court will issue a notice of discharge shortly thereafter or about 3 to 4 months after the initial filing.
For a Chapter 13 and a Chapter 11, the discharge does not come until after all payments have been satisfied under the wage earner or debt reorganization plan. In a Chapter 13, a discharge may be issued after either the 3 or 5 year plan payments are complete so the discharge will be issued within a few months after that time has expired or as soon as practicable. For a Chapter 11, completion of the plan may be several years after the initial filing. Again, the trustee will issue the discharge as soon as practicable thereafter.
Debtors do have to complete a debtor education course or financial management class in all cases before the discharge is granted. This class or course is short, can be completed online and fees can be as low as $10. In some cases, the trustee can waive attendance at this class.
Contents and Service of the Discharge
When the bankruptcy proceeding has ended and no objections to discharge have been filed or any other adversarial proceedings have been initiated, the clerk of the bankruptcy court will issue the discharge and send it to all named creditors. The notice does not detail which debts have been discharged but does advise creditors that they may not attempt further collection efforts and that any such activity exposes them to prosecution for contempt. Even if a creditor does not receive the notice, it still applies to them.
Objections to Discharge
There are occasions when creditors do object to the discharge of a debt. Objections must be filed within 60 days after the 341(a) meeting in Chapter 7 and 13 cases. These are adversarial proceedings. Usually, a creditor will claim that a debt was incurred by fraud or misrepresentation such as by lying on a loan application or that certain luxury or cash advances were made shortly before filing. In credit card matters, a creditor may assert that the debtor obtained the card with no intention of paying it back and then filing for bankruptcy.
The court can also object to any discharge for a wide range of reasons:
- Failure to provide requested tax documents
- Failure to complete the debt education or financial management course
- Committing perjury on the schedules and other documents on the petition and at the 341(a) meeting
- Fraudulent transfers of property
- Concealment of property
- Destruction or concealment of financial documents
- Violation of any court order
Further, a court can also revoke a discharge once granted for up to one year after it was issued. The grounds for revocation include fraud in obtaining the discharge such as a discovery that the debtor knew he or she was entitled to acquire property or assets that would have been part of the bankruptcy estate and failed to disclose this fact. Other acts of impropriety that can lead to the court revoking a discharge are the destruction, concealment, falsification or failure to preserve financial documents and knowingly making a false oath or account or presenting a false claim.
What Debts are not Dischargeable
Debtors who were at least represented by a bankruptcy attorney should be aware of which debts were not discharged in the bankruptcy. These include secured debts but also many other types, which may include in a Chapter 7 filing:
- Fines for criminal prosecution
- Obligations that are the result of fraud or misrepresentation as confirmed by a court
- Spousal maintenance payments
- Child support
- Tax liens
- Student loans except under exceptional circumstances
- Drunk driving fines, penalties and restitution orders
- Debts owed to particular tax-advantaged retirement plans
- Debts to condominium or cooperative housing associations in certain cases
- Medicare or Medical fraud or for repayment due to overpayment of benefits
- Any debt not included on the debtor’s list of liabilities
In Chapter 13, you may be able to discharge debts incurred as a result of malicious or willful injury to property as well as those incurred for tax obligations and property settlements in divorce matters. These and debts incurred as a result of false pretenses, fraud, and malicious injury to persons or property will be discharged unless the creditor files a timely objection.
There is also a hardship discharge available in a Chapter 13 where the debtor requests the court to grant the discharge before completion of the payments under the plan because of an unforeseeable event that was beyond the control of the debtor. The event must have materially changed the financial circumstances of the debtor from what existed when the petition and plan were filed.
Payment of Collection of Debts after Discharge
Nothing prevents or prohibits a debtor from voluntarily repaying a discharged debt. Some debtors do this to repay family loans or those from friends. Should a creditor attempt to collect on a discharged debt, the creditor should be reminded that it is permanently enjoined from such conduct and that it can result in a civil fine. If the creditor persists, we can file a motion on your behalf to reopen the case and have the court address it. If the creditor is found in contempt, the court can order it to pay a fine.
Retain the Discharge in Bankruptcy Attorney Group
While some bankruptcies are relatively routine, many are not. There are also many potential pitfalls that can result in your being denied a discharge or having to respond to adversarial proceedings. Contact one of our highly experienced discharge in bankruptcy attorneys from the Bankruptcy Attorney Group to discuss your financial situation and whether bankruptcy protection or debt management is right for you.