The ultimate goal of a consumer bankruptcy case is the discharge of debts. While a discharge can greatly improve your financial situation, it is not a magic eraser that wipes out all types of debts. The following are some frequently asked questions about the debt discharge at the end of a bankruptcy case.
What is a discharge?
When a court orders a debt to be discharged, it essentially releases you from any further liability for the debt. Even though you agreed to pay the debt in full, you no longer have the legal obligation to do so. This means that a creditor can no longer make any attempts to fulfill the debt, including phone calls, letters, lawsuits, wage garnishments, and more.
When can you get a discharge?
The timing of bankruptcy discharges varies. In a Chapter 7 bankruptcy, the discharge can occur only a few months after you file your petition, provided no creditors objected and the court found no reason to dismiss the case. On the other hand, it can take three to five years to receive a discharge in a Chapter 13 case. This is because you must first complete your repayment plan.
Which debts are dischargeable?
As mentioned, a discharge will not necessarily leave you debt-free, as not all types of debt are dischargeable. A bankruptcy court may generally discharge the following types of debt:
- Credit cards
- Medical bills
- Unsecured personal loans
- Past due rent
- Unpaid utility bills
- Most legal judgments
The following debts are generally nondischargeable:
- Certain tax debts
- Legal judgments arising from drunk driving accidents and injuries
- Criminal fines and costs
- Student loans
- Spousal support or child support
- Debts from malicious injury to people or property (these are dischargeable in Chapter 13 cases but not Chapter 7)
- Tax-advantaged retirement plans
- Governments penalties or fines
- Secured debts
- Debts not disclosed to the bankruptcy court
Not that while many of the above may not be dischargeable, they may be included and paid off in your Chapter 13 repayment plan, so an ultimate discharge may not be necessary.
Is a discharge automatic?
A discharge is not guaranteed under U.S. bankruptcy laws. The law allows the court to dismiss a case without a discharge for different reasons. Such reasons include:
- Finding an objection by a creditor valid
- Finding an objection by the bankruptcy trustee valid
- A debtor’s failure to complete the financial management requirements
- A debtor’s failure to provide tax returns or required documents
- A debtor’s concealment of assets or failure to account for asset loss
- Findings of fraud or perjury
- Violation of a court order
- Receiving another discharge too recently
Receiving a dismissal without a discharge can be costly, and an attorney can help you meet all the requirements of bankruptcy to avoid this situation whenever possible.
Can you still pay a discharged debt?
You might not imagine wanting to pay a debt when you do not have to, but it does happen. Often this may occur when you borrowed money from a family member or friend. You must report all debts to the bankruptcy court, including personal loans from individuals, and the court may discharge the debt. You do still have the opportunity to pay discharged debts back voluntarily so you can avoid a strained relationship.
What happens if creditors keep trying to collect a discharged debt?
A discharge prohibits creditors from trying to collect a debt, however, some creditors may continue to do so. You can then file a motion with the bankruptcy court to request that the court reopen your case and take action against the creditor. A bankruptcy court may sanction the creditor and hold them in contempt of court for violating the discharge order.
Can a discharge affect your employment?
Bankruptcy cases are public record, and some people may worry that their employer will judge them for not paying their debts and may subsequently terminate them or take another type of adverse employment action. Fortunately, the law provides express protections against employment discrimination or retaliation due to bankruptcy. Both public and private employers may not do any of the following solely due to insolvency or discharge:
- Refuse to hire
- Denial of a promotion or pay increase
- Suspension or demotion
- Unequal treatment
- Termination
- Denial of a franchise or license
Bankruptcy law provides for the privilege of a discharge in most cases without fear of adverse employment effects.
Contact Our Minnesota Bankruptcy Lawyers for Help Today
At the Minnesota bankruptcy law firm of Kain & Scott, we help clients gain control of their finances through bankruptcy and other debt solutions. We can closely evaluate your situation and determine whether you may be eligible for a discharge and whether bankruptcy may be the right solution in your case. Please call 800-551-3292 or contact us online for a free consultation today.
