A bankruptcy discharge is an order that wipes out qualifying debt, such as credit card balances, utility bills, and medical debt. You’ll receive it toward the end of your Chapter 7 or Chapter 13 bankruptcy, and for most bankruptcy filers, the bankruptcy discharge is the most important part of a bankruptcy case. Once entered, the filer is no longer responsible for the discharged debt. A creditor can’t call, send demand letters, report nonpayment of the debt to credit reporting agencies, file a lawsuit, or take other actions to collect the discharged debt.
When To Expect the Bankruptcy Discharge
If your bankruptcy chapter proceeds as planned; you satisfied all requirements and no one successfully objects to your filing—you’ll receive the discharge at the end of your matter after you’ve done the following:
• filed the official petition, schedules, and required local forms
• provided the court with accurate documentation of your debts, assets, income, and financial dealings
• attended the meeting of creditors (and the confirmation hearing in Chapter 13)
• participated in a session with a credit counselor and taken a financial management course, and
• if filing under Chapter 13, made all of your payments under your Chapter 13 repayment plan.
The court will notify you by mailing out a document called an “order of discharge.” However, the order won’t close your case. The bankruptcy case will remain open until the bankruptcy trustee—the official who manages your matter—disperses available money to creditors or until any outstanding bankruptcy litigation ends.
Time wise, in a Chapter 7 case, the court sends out the order approximately three to four months after filing. In a Chapter 13 bankruptcy, the discharge comes after completing the three- to five-year repayment plan. It will wipe out any remaining dischargeable debt balances at that time.
Will the Discharge Order List Discharged Debts?
No—and many find this fact surprising. Instead of listing the wiped-out debts, the order will provide general information about debt categories that don’t go away in bankruptcy or “nondischargeable debt.” For instance, it will explain that you’ll likely remain responsible for paying:
• domestic support obligations (spousal or child support)
• most student loans and tax debt
• accounts that the court decides you can’t discharge
• most fines, penalties, and criminal restitution
• some debts that you failed to list correctly
• particular loans owed to a retirement plan
• money owed as a result of injuring someone while operating a vehicle while intoxicated, and
• liabilities covered by a reaffirmation agreement (a court-approved agreement to continue paying a creditor).
For certain other debts, the creditor must file a lawsuit within the bankruptcy case asking the judge to declare that the bankruptcy will not discharge the debt. Debts arising from fraud committed by the debtor or for personal injury caused by the debtor while intoxicated are debts that the court might declare are nondischargeable.
Liens Remain on Property
Although a discharge relieves you of your responsibility to pay a debt, it won’t get rid of a lien that a creditor might have on your property. A lien allows the creditor to repossess and sell the collateral to recover at least some of the money you borrowed if the debt remains unpaid even if the court discharged the debt in your bankruptcy case. Some liens can be removed, however, even after the closure of the bankruptcy case. A local bankruptcy lawyer will be able to advise you about your options.
After the court issues the discharge, creditors holding nondischargeable debts can continue collection efforts. Although the order doesn’t provide the clarity that many debtors desire, it might be helpful to understand that creditors are expected to know whether a particular debt is dischargeable. Protections exist, too. A creditor that attempts to collect a discharged debt wrongfully is subject to paying for any resulting losses.
The Court Can Deny or Revoke a Discharge
If you fail to cooperate with the court or the trustee, are not truthful on the paperwork or in your testimony, fail to turn over assets, or are otherwise undeserving of a discharge, the court can deny your discharge. Likewise, if the court learns that you committed some act that would have caused the court to deny your discharge, the court can revoke it.
Keep Your Discharge Order after Bankruptcy
It’s not a bad idea to keep your discharge paperwork somewhere you can easily find it because you might need it in the future. For instance, a lender might ask for a copy if you apply for credit or a home mortgage. Also, you’ll want to be able to provide the following to any creditor that calls to collect a discharged balance:
• bankruptcy case number
• filing date, and
• discharge date.
The information allows the creditor to verify the bankruptcy and that the discharged debt is no longer collectible. You’ll find the filing date and case number at the top of almost any document you receive from the court. The discharge date will appear on the left-hand side of the discharge order immediately next to the issuing judge’s name.
Types of Bankruptcy Discharges
Individual debtors can file for Chapter 7 or Chapter 13 bankruptcy protection. The trustee will liquidate your nonexempt assets and divide the proceeds among your creditors in a Chapter 7 bankruptcy. Any debt that remains will be discharged or erased.
You’ll enter into a payment plan over three to five years that repays all or most of your debts if you file for Chapter 13 protection. Any debt that remains at the end of your repayment plan will be discharged.
A Chapter 13 bankruptcy allows some debts to be discharged that can’t be discharged in Chapter 7 proceedings. This includes marital debts created in a divorce agreement, although not spousal support or alimony, as well as court fees, certain tax-related debts, condo and homeowners’ association fees, debts for retirement loans, and debts that couldn’t be discharged in a previous bankruptcy.
Limitations of Chapter 7 Discharges
Section 523(a) of the Bankruptcy Code describes the types of debt that can’t be discharged in Chapter 7 proceedings, including:
• Domestic obligations such child support, alimony, and debts owed under a marriage settlement agreement
• Certain fines, penalties, and restitution resulting from criminal activities
• Certain taxes, including fraudulent income taxes, property taxes that came due within the previous year, and business taxes
• Court costs
• Debts associated with a DUI violation
• Condo or other homeowners’ association fees that were imposed after you filed bankruptcy
• Retirement plan loans
• Debts that weren’t discharged in a previous bankruptcy
• Debts you failed to list on your bankruptcy petition
Limitations of Chapter 13 Discharges
Some debts can’t be discharged under Chapter 13 bankruptcy, including:
• Child support and alimony
• Certain fines, penalties, and restitution resulting from criminal activities
• Certain taxes, including fraudulent income taxes, property taxes that became due within the previous three years, and business taxes
• Debts you didn’t list on your bankruptcy petition
• Debts incurred due to personal injury or death caused by drunk driving
• Debts arising from fraud or recent luxury purchases
Disadvantages of a Bankruptcy Discharge
Your bankruptcy protection doesn’t extend to joint account holders or cosigners on any of your debt obligations. Your personal liability for the debt is removed when you receive your bankruptcy discharge, but your cosigner remains on the hook for the entire balance of the debt. Creditors can still collect from or even sue—cosigners and joint account holders for discharged debts.
Your bankruptcy discharge will additional appear on your credit report and affect your credit score for seven years after you file for Chapter 13 protection, and for 10 years from the date you file for Chapter 7 bankruptcy.
How Long Does It Take to Get a Bankruptcy Discharge?
Discharge for a Chapter 7 bankruptcy usually occurs about four months after the date you file your bankruptcy petition.14 The discharge occurs after all the payments under the repayment plan have been made in a Chapter 13 bankruptcy, typically three to five years
Ways to Object to a Bankruptcy Discharge
A bankruptcy discharge cancels your obligation to pay back qualifying debts after your bankruptcy case ends. Creditors cannot legally collect a discharged debt from you. If you’d like to dispute the debtor’s right to a discharge, you’ll need to file either an adversary proceeding (a type of lawsuit) or a motion, depending on the type of debt involved.
• When you’ll file an adversary case. A creditor or the trustee will file a complaint in an adversary proceeding if the dischargeability issue involves a fraudulent act intended to deprive a creditor of payment. The fraudulent act can occur either before the bankruptcy case or as part of the bankruptcy filing.
• When you’ll file a motion. If the debtor received a discharge in a previous matter and isn’t entitled to another, you’ll object to the discharge using the motion process.
• You must file the objection within 60 days of the date of the 341 meeting of creditors (with some exceptions—consult with a bankruptcy lawyer). The deadline date will appear on the Notice of Chapter 7 Bankruptcy Case mailed out by the court.
Types of Objections Raised in an Adversary Proceeding
A creditor will usually object to the discharge of its particular debt when fraud or an intentional wrongful act occurs before the bankruptcy case. For instance, examples of nondischargeable debts, if proven, could include:
• The costs and damages caused by intentional and spiteful conduct. A typical example of this damage would be for repayment of repairs made to apartments or other rental properties after people move out.
• All charges on a credit card over a certain amount made within 90 days of filing for bankruptcy or cash advances taken on credit cards of over a certain amount made within 70 days of filing the case.
• Any damages or deaths caused while operating a vehicle while under the influence.
A creditor or the trustee can also object to the discharge of all debts involved in the case. This type of objection is common when the fraud is committed in connection with the bankruptcy, rather than before the filing. Examples include:
• perjury by providing false information on the bankruptcy petition and schedules
• transferring the title or property to another person to avoid including it in the bankruptcy
• destroying property or documents
• lying to the bankruptcy trustee or judge during hearings, or
• failing to obey a lawful order of the bankruptcy court.
The penalty for losing any fraud-related objection can be very severe. You could face dismissal of your bankruptcy case, repaying some or all of your debts, and possibly even criminal prosecution. Fraud isn’t always involved in an objection, however. Sometimes it isn’t clear whether a debt fits within a nondischargeable category. In that case, a creditor might ask the court to weigh in on the dischargeability status of a particular debt. For instance:
1. Priority debt such as alimony, back child support, court costs, and fines owed to government institutions, and restitution can never be discharged, but it can be difficult to know whether a debt will be classified as such.
2. Federal and state income taxes can be complicated because while they’re often nondischargeable, it’s not always the case and a judge might be needed to resolve a dispute.
What Debts are Not Qualified to be Discharged in Bankruptcy?
There are some debts that are not eligible to be discharged in a bankruptcy case. According to the Bankruptcy Code, some types of debt that may not qualify to be discharged include:
• Debt incurred in furtherance of a crime (e.g., embezzling funds while serving in a fiduciary capacity);
• Debt associated with child support or alimony;
• Student loan debts;
• Debt that stems from neglecting to pay taxes (e.g., income tax debt); and/or
• Debt racked up from unpaid HOA fees.
Do I Need an Attorney for Bankruptcy Discharges?
If you discover that a certain percentage of your debt falls into any of the categories that a creditor may object to the discharge of, or alternatively, if a creditor has already filed a motion or other adversarial proceeding against you, then it may be in your best interest to hire Ascent Law Firm attorney as soon as possible.
An experienced bankruptcy attorney will be able to present an argument on your behalf that defends against the creditor’s objections and explains why a particular debt should be discharged. Your attorney can also inform you about the exemption laws in your jurisdiction, the rights you have under those laws, and your odds of defeating the creditor’s objections to some portions of your debt. In addition, your attorney will be able to walk you through the steps of the entire bankruptcy process, which aside from providing legal representation in court, may also include the following:
• Filing the appropriate legal documents in bankruptcy court;
• Determining whether Chapter 7 is the most appropriate chapter of bankruptcy for you to declare;
• Assisting you with a plan to pay down some of your debts; and
• Making sure that you comply with all of your legal obligations to formally complete the bankruptcy process.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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West Jordan, Utah
84088 United States
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