The Debt Discharge in Bankruptcy
Bankruptcy's power to discharge debts - legally ending a filer's obligation to repay them - is one of the main reasons that more than a million people file each year.
The debt discharge comes at the end of a successful bankruptcy filing - which could be as quickly as three or four months in a Chapter 7 case, or after few years of paying off secured debts in a Chapter 13 case.
To learn what to except in a bankruptcy case and how discharging debts can provide financial freedom, speak with a bankruptcy attorney today. Use the quick case review form below to connect with a local lawyer for a free consultation.
What Happens When My Debts Are Discharged?
If the bankruptcy court grants you a debt discharge, that likely means two major things for your finances:
- You're no longer responsible for repaying your discharged debts. No matter how much you still owe on a debt, you have no legal obligation to repay it once the court has granted you a discharge.
- Creditors are prohibited from taking any collection action against you. Because discharged debts have been excused by federal law, creditors who attempt to collect on a debt that has been discharged may face serious fines and penalties.
How Does a Chapter 7 Debt Discharge Work?
Once you or your bankruptcy lawyer have filed your initial bankruptcy petition and follow-up schedules, your trustee will arrange a Meeting of the Creditors.
Assuming none of your creditors object to the debts you're seeking to discharge and you followed all the rules when filing your paperwork, you may be able to receive your discharge within two to five months of this meeting.
What Would Prevent Me from Getting a Chapter 7 Debt Discharge?
If you've filed for bankruptcy, you'll want to make sure you adhere to the strict requirements of bankruptcy law and stay on top of all the paperwork required by the bankruptcy court.
Specifically, you could be denied your debt discharge if any of the following occurs:
- You can't produce sufficient proof of your personal finances. This could be the result of sloppy or haphazard bookkeeping on your part. A bankruptcy lawyer may be able to help you make sure all your documentation is adequate and in order.
- You can't adequately explain how you became destitute. In other words, if you're unable to demonstrate that you're legitimately broke, the bankruptcy court may not be able to help you.
- You commit bankruptcy fraud, which could mean lying under oath (perjuring), concealing property, destroying property, concealing debts (as to family or friends), transferring property, etc. Note that the previous disqualifier relates to this one: if you can't prove how you lost your money, the court may assume you hid it.
- You miss a deadline, put false information on a form or otherwise break the rules of the bankruptcy court. These mistakes are often the result of honest human errors, but can cost you your case!
- You don't complete the required credit counseling briefing and financial management course in time.
Your bankruptcy lawyer's familiarity with bankruptcy laws and court requirements could potentially help you avoid costly errors that could damage your case.
What Debts Are Non-Dischargeable in Chapter 7 Bankruptcy?
Although the debt discharge in Chapter 7 bankruptcy can provide significant financial relief for those struggling with debt, it cannot discharge all unsecured debts. In most cases, you cannot be excused from financial obligations for:
- Child support & alimony
- Some tax debt
- Student or educational loans
- DUI fines
- Other criminal fines & penalties
Also keep in mind that the court can revoke or deny a discharge if it discovers any fraudulent behavior on your part.
Other Options in Chapter 7 Bankruptcy
If you believe you can afford to continue making payments on certain debts, you may be able to file specific paperwork with the court to request one of the following.
- Reaffirmation of Debt: In this option, you and your creditor agree that you'll continue to make payments on your secured debt (such as an auto loan). In exchange, the creditor probably won't repossess the property tied to the loan as long as you continue to make payments.
- Redemption of Property: You may redeem certain property by paying your creditor its fair market value in one lump sum. Although this isn't a realistic option for many filers, it can prove useful to some.
- Surrender of Property: If you cannot afford a lump payment or continued installments, you can surrender your property to your creditor.
Talk to a Bankruptcy Lawyer for Free
Still uncertain which of your debts are likely to be discharged by the bankruptcy court? Ask a bankruptcy lawyer to help you figure out the specifics.
All you need to do is fill out our free case evaluation form or call us at 866-288-7281 and we'll connect you with a sponsoring bankruptcy attorney practicing near you.
Why wait to start improving your finances? Let Bankruptcy Central help you today!