The Discharge in Bankruptcy
What is a discharge in bankruptcy?A bankruptcy discharge releases you from personal liability for certain specified types of debts. In other words, you no longer are legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting your creditors from taking any form of collection action on discharged debts, including legal action and communications with you, such as telephone calls, letters, and personal contacts.
Although you are not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment
of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured
creditor may enforce the lien to recover the property secured by the lien.
The timing of the discharge varies, depending on the chapter under which the case is filed. In a
chapter 7 case, for example, the
court usually grants the discharge promptly. Typically, this occurs about four months after the date you file the petition with the clerk of the
bankruptcy court. In chapter 13 cases the court generally
grants the discharge as soon as practicable after you complete all payments under the plan.
Since a chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of
filing. The court may deny you a discharge in a chapter 7 or 13 case if you fail to complete "an instructional course concerning
financial management."
Unless there is litigation involving objections to the discharge, you will usually automatically receive a discharge. The Federal
Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to you, your attorney, all
creditors, the U.S. trustee, and the case trustee. The
notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not
covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further
collection. They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt.
Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted to you. Therefore, you must still repay those debts after bankruptcy. There are 19 categories of debt excepted from discharge under chapters 7. A more limited list of exceptions applies to cases under chapter 13. Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies. The most common types of non-dischargeable debts are certain types of tax claims, debts not set forth by you on the lists and schedules the debtor must file with the court if the case is an “asset case“, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by your operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans, and debts for certain condominium or cooperative housing fees.
The types of debts described in sections 523(a)(2), (4) and(6) (obligations affected by fraud or maliciousness) are not automatically excepted from discharge. Creditors must ask the court to determine that these debts are excepted from discharge. In the absence of an affirmative request by the creditor and the granting of the request by the court, the types of debts set out in sections 523(a)(2), (4) and (6) will be discharged.
A slightly broader discharge of debts is available to you in a chapter 13 case than in a chapter 7 case. Debts dischargeable in a
chapter 13, but not in chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations,
and debts arising from property settlements in divorce or separation proceedings. Although in a chapter 13 you generally receive a discharge only after
completing all payments required by the court-approved (i.e., "confirmed") repayment plan, there are some limited circumstances under which you may
request the court to grant a "hardship discharge" even though you have failed to complete plan payments. Such a discharge is available only to you if
your failure to complete plan payments is due to circumstances beyond your control. The scope of a chapter 13 "hardship discharge" is similar to that
in a chapter 7 case with regard to the types of debts that are excepted from the discharge.
In chapter 7 cases, you do not have an absolute right to a discharge. An objection to your discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge. To object to your discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts a lawsuit referred to in bankruptcy as an "adversary proceeding."
The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on personal financial management; 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 or an earlier discharge in an earlier case commenced within certain time frames (discussed below) before the date the petition was filed. If the issue of your right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.
In chapter 13 cases, you usually are entitled to a discharge upon completion of all payments under the plan. As in chapter 7,
however, discharge may not occur in chapter 13 if you fail to complete a required course on personal financial management. You will also be ineligible
for a discharge in chapter 13 if you received a prior discharge in another case commenced within time frames discussed the next paragraph. Unlike chapter
7, creditors do not have standing to object to the discharge in your chapter 13. Creditors can object to
confirmation of the repayment plan, but cannot object to the discharge if you have completed making
plan payments.
The court will deny a discharge in a later chapter 7 case if you received a discharge under chapter 7 in a case filed within eight
years before the second petition is filed. The court will also deny a chapter 7 discharge if you previously received a discharge in a chapter 13 case
filed within six years before the date of the filing of the second case unless (1) you paid all "allowed unsecured" claims in the earlier case in full,
or (2) you made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and your plan was proposed in
good faith and the payments represented your best effort. You are ineligible for discharge under chapter 13 if you received a prior discharge in a chapter
7 case filed four years before the current case or in a chapter 13 case filed two years before the current case.
The court may revoke a discharge under certain circumstances. For example, a trustee, creditor, or the U.S. trustee may request that the court revoke your discharge in a chapter 7 case based on allegations that you: obtained the discharge fraudulently; failed to disclose the fact that you acquired or became entitled to acquire property that would constitute property of the bankruptcy estate; committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or failed to explain any misstatements discovered in an audit of the case or fails to provide documents or information requested in an audit of the case. Typically, a request to revoke your discharge must be filed within one year of the discharge or, in some cases, before the date that the case is closed. The court will decide whether such allegations are true and, if so, whether to revoke the discharge.
In a chapter 13 case, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of
confirmation or discharge.
If you received a discharge you may voluntarily repay any discharged debt. You may repay a discharged debt even though it can no
longer be legally enforced. Sometimes you agree to repay a debt because it is owed to a family member or because it represents an obligation to an
individual for whom your reputation is important, such as a family doctor.
If a creditor attempts collection efforts on a discharged debt, you can file a motion with the court, reporting the action and
asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge
constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a
discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction
is civil contempt, which is often punishable by a fine.
The law provides express prohibitions against discriminatory treatment of you by both governmental units and private employers.
A governmental unit or private employer may not discriminate against you solely because you were a debtor, were insolvent before or during the case, or
have not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee;
discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer
may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
If you lose or misplace the discharge order, another copy can be obtained by contacting our offices. There will be a fee charged
for searching the court records and printing a new discharge order.