Discharge of Debt

An individual can receive a discharge of debt they owe by filing for Chapter 7 or Chapter 13 bankruptcy.  A “Discharge of Debt” releases an individual’s personal liability for many types of unsecured debts, meaning they will no longer owe for debts they previously had.  It also prevents creditors from making any collection efforts toward the debtor, including phone calls, letters, and various threats.  Types of unsecured debts that can be discharged include credit card debt, medical bills, personal loans, payday loans, and vehicle or mortgage deficiencies (from property that has already been repossessed or foreclosed).  There are types of unsecured debts, though, that cannot be discharged through filing for bankruptcy.  These types of debts include certain tax liabilities, student loans, domestic support obligations (child support, alimony), financial responsibility for any injuries caused while driving under the influence of drugs and/or alcohol, and certain debts owed to governmental agencies.  Additionally, if a creditor has received a judicial lien on your property, the lien will also not automatically be discharged by the bankruptcy.  If a debt is not discharged, the individual is still responsible for the debt that is owed post filing.

Discharge of debt varies slightly between chapter 7 and Chapter 13 bankruptcy filings. In a chapter 7, creditors are given notice of the proceedings and are given a certain amount of time to object to the discharge of their debt.  If no objections are received by the court, the debt is typically discharged automatically.  The court also has certain requirements and regulations for discharge and may dismiss a case if the requirements are not met in a timely manner.  Some of the requirements of the court are that the individual provide tax documents and complete a course on financial management. The court may also dismiss a case without discharge for any type of fraud, concealment, or failure to account for assets.

In a Chapter 13 Bankruptcy discharge of debt occurs when the reorganization plan is paid in full.  In Chapter 13 filings, creditors are given the opportunity to object at the Chapter 13 plan confirmation hearing.  Creditors may not object to the discharge of debts upon the completion of payments under the plan.It is important to note that in Chapter 7 proceedings the court may revoke a discharge under limited circumstances.  The grounds for a revocation closely resemble the grounds of the court to dismiss the case without discharge, including fraud or concealment.  In a Chapter 13 filing the court may revoke either confirmation or the discharge of the plan due to fraud.

After your debt is discharged creditors are not legally allowed to attempt to collect money from an individual for a discharged debt.  Should a creditor attempt to collect discharged debt, a motion can be filed with the court to reopen the case to address the creditor.  The court may file sanctions against creditors for violating a discharge order.

Though a creditor may not attempt to collect a discharged debt, you may opt to voluntarily pay the amount that was discharged.  It is imperative to note that this may only be done after a final order has been issued and the bankruptcy is complete.  This most often occurs when the relationship between the parties is of personal importance to the individual, for example, if debts to family or friends were discharged.

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