How Does a Bankruptcy Discharge Affect My Debt?

The short answer to this question is that a bankruptcy discharge eliminates your debt. According to Bankruptcy Basics, an overview of the United States Bankruptcy Code, a bankruptcy discharge “releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts.” Whatever debts are discharged when you file chapter 7 or chapter 13 bankruptcies will be removed from your life, forever.

However, there is a long answer and this answer dives into specific details about timing, scope, objections, eligibility, withdrawals and the differences between bankruptcy discharges in chapter 7 and chapter 13 filings.

Timelines

Unless there are objections, a bankruptcy discharge is generally granted automatically, in a chapter 7 and 13. Each chapter, however, has a different timeline for discharging debt. In a chapter 7 bankruptcy a discharge usually happens about 4 months after a petition is filed.

A discharge takes longer in a chapter 13 because it doesn’t occur until the repayment period ends. Repayment periods generally last 3-5 years and any debt not paid back within that time period will be discharged and you will no longer be responsible to pay it.

Process

The bankruptcy discharge process is the same in a chapter 7 and 13. When your debt is discharged, a bankruptcy clerk will notify all your creditors listed on your petition, that the debt you owe has been discharged. This notification will explain that they may not attempt to collect on this debt now or in the future and if they do they are subject to punishment for contempt. You, your bankruptcy trustee and your attorney will also receive a copy of the discharge order.

Non-Dischargeable Debts

Some debts, determined by the US Congress, are nondischargeable. “Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as the debtor’s drunken driving).”

Chapter 7 has 19 categories of debt that will not be discharged; chapter 13 has a smaller list. Some of the common nondischargeable debt categories include:

• Certain types of tax claims
• Debts not listed on the initial petition (completed by you)
• Spousal, child support or alimony
• Willful and malicious injuries to someone or someone’s property
• Government fines or penalties
• Education loans
• Injuries caused by your drunk driving

Bankruptcy Discharge Eligibility

You are not eligible for a discharge under a chapter 7 if:

• Within the last 8 years, you filed a chapter 7 and your debts were discharged.
• Within the last 6 years, you filed a chapter 13 and your debts were discharged, unless
• You paid, in full, all “allowed unsecured” claims or
• You paid at least 70% of the allowed unsecured claims, the plan was proposed in good faith and payments were done with your best effort.

You are not eligible for a discharge under a chapter 13 if:

• You received a discharge in a chapter 7, 11 or 12 filed in the last 4 years.
• You received a discharge in a chapter 13 in the last 2 years.

Objections

Chapter 7 cases allow creditors to submit objections to a discharge, within a certain time period. In a chapter 13, creditors do have the option to object to the proposed repayment plan, however they do not have the option to object to discharged debt (because they will have agreed to this if they approve the repayment plan).

Bankruptcy Discharge Denied

If you file a chapter 7 bankruptcy you are not entitled to a discharge. The court allows creditor objections and has grounds for denial if you don’t follow court procedures. If you file a chapter 13 bankruptcy you typically will receive a discharge if you complete your repayment plan.

If you file for bankruptcy, chapter 7 or 13, you will be required to complete a financial management class. If this class is not completed, the court may deny your request for a discharge.

Chapter 7 grounds for denial, according to Bankruptcy Basics:

• Failure to provide requested tax documents
• Transfer or concealment of property with intent to hinder, delay or defraud creditors
• Destruction or concealment of books or records
• Perjury and other fraudulent acts
• Failure to account for the loss of assets
• Violation of a court order

The United States Bankruptcy Code and the Federal Rules of Bankruptcy Procedures define the bankruptcy discharge and all elements associated with the bankruptcy process in greater detail, explaining specific rules and regulations that must be followed in order to receive a discharge and relieve you of your debts.

If you are interested in learning more about the bankruptcy discharge, download our free ebook.