What is a Discharge in Bankruptcy?

The United States Courts website provides the following description of a discharge. 

“A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.”

             While this description is accurate it can be a bit confusing.  The critical component of the discharge is the release from continuing liability.  This release effectively means that you no longer have a legal requirement to pay the discharged debt. 

            One thing to keep in mind is that a discharge does not eliminate the underlying debt.  It eliminates the filer or debtor’s requirement to pay the debt.  This distinction can be quite critical when considering the effects of security interests (mortgages etc).  

           Barring litigation, or another valid denial of discharge the debtor in Bankruptcy receives the discharge automatically just before termination of the case.  The discharge is ordered by the court in written form and is distributed to the debtor’s creditors and to the debtors themselves.  This order also terminates the automatic stay, of course at this point the auto stay is no longer necessary as it is effectively replaced by the discharge.  Like the automatic stay the discharge prevents creditors from collecting on the debts subject to the order. 

            It should be noted however, that there are certain types of debts that are not dischargeable or that are only discharged in certain circumstances.   The bankruptcy code specifically limits the types of debts that are discharged.  Many of these limits are the result of policy concerns on the part of congress.  This can be most clearly seen in the provision preventing the discharge of debts for personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated. 

            Other common types of nondischargeable debts include certain taxes, unscheduled or unlisted debts, spousal and child support debts, debts that resulted from willful or malicious injury to another person (i.e. if you hit someone in the head with a bat and they sue you Bankruptcy will not solve it for you), certain debts to governmental units, loans against tax-advantaged retirement plans, (i.e. 401K or pension loans).  In many of these cases the creditor is required to petition the court to except the debt from the discharge if the creditor fails to do so then the underlying debt is discharged regardless of its base dischargeablity. 

            Then there are other debts that are technically dischargeable but only in limited circumstances.  The most notable of these is student loan debt.  Student loans are very difficult to discharge and it is important that if you are considering filing to rid yourself of the burdens of student loans that you carefully consider all relevant case law and the code itself to determine if you will be able to discharge them. 

For more information on this topic check out the book section entitled "What is a discharge and How does it work?"  Which you can buy on Amazon or by clicking the various links found on this page.  

                                                                  

Ok, But Do I Qualify?

            Lots of people have asked me some varient of this question.  What usually happens is I tell them about the advantages of Bankruptcy and they are interested but they honestly do not believe that they can file.  The good news is that if you are reading this you probably can file some form of Bankruptcy.  Below I reproduce a short section of my book that bares the same title as this posting.  



  

                                                                   

            I am tempted to simply say yes, you do.  The reason I say this is because if you are reading this book chances are you qualify.  In fact, if you can read, there is a pretty good chance you qualify.  Technically all you need to qualify is to be a permanent legal resident of the United States or a citizen of the United States.  One would guess that the courts would probably not allow a person with no creditors to file successfully for bankruptcy but I doubt many debt free people are entertaining such a thing.  So I would say yes you do qualify.

            In general a person will qualify for some form of Bankruptcy however in the case of repeat filers there may be limits on their ability to get a discharge and in the case of high income earners there may be limits on the availability of a Chapter 7.  So perhaps a better question would be do I qualify for a Chapter 7 Bankruptcy?  That question will be answered more fully in the section entitled “Types of Bankruptcy/Choosing the Right One for You.”  

            Earlier in this book, I gave a brief description of the difference between a Chapter 7 and 13 Bankruptcy.  A review of that difference leads most people to believe that a Chapter 7 is a much better deal, and frankly all things being equal it often is a much better deal.  However there are cases where a person does not qualify for a discharge in a Chapter 7, and in those cases it is often a good idea to look at a Chapter 13.  As with the underlying “do I qualify” question, this issue will be dealt with much more fully in the section on choosing the right type of Bankruptcy. 

Automatic Adjustments and Amended Dollar Amounts

Automatic adjustments to certain dollar amounts stated in various provisions of the Bankruptcy Code, one provision in Title 28, seven Official Bankruptcy Forms which contain adjusted dollar amounts, and two Director's Forms which include dollar amounts take effect today.

These adjustments will apply to cases filed on or after April 1, 2013.

For more information on these check out the United States Courts site

Also don't forget to check out the book below.