Bankruptcy FAQ

What is a discharge in bankruptcy?
When does the discharge occur?
How does the debtor get a discharge?
Are all the debtor’s debts discharged or only some?
Does the debtor have a right to a discharge or can creditors object to the discharge?
Can the debtor receive a second discharge in a later chapter 7 case?
Can the discharge be revoked?
May the debtor pay a discharged debt after the bankruptcy case has been concluded?
What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
May an employer terminate a debtor’s employment solely because the person was a debtor or failed to repay a discharged debt?
Does a previous bankruptcy prevent me from filing?
How do I file for bankruptcy? Is there a charge?

WHAT IS A DISCHARGE IN BANKRUPTCY?

Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, you are no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain 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. Therefore, a secured creditor may still enforce a lien to recover the property secured by the lien.

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WHEN DOES THE DISCHARGE OCCUR?

The timing of the discharge varies, depending on the chapter under which the case is filed. In a Chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time limit fixed for creditors filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse. Typically, this occurs about four months after the date you file the petition with the clerk of the bankruptcy court.

In Chapter 11 (reorganization) cases, the discharge occurs upon confirmation of a Chapter 11 plan.

In cases under Chapter 13 (adjustment of debts of an individual with regular income), the court grants the discharge as soon as practicable after the debtor completes 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.

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HOW DOES THE DEBTOR GET A DISCHARGE?

Unless there is litigation involving objections to the discharge, the debtor will automatically receive a discharge. The clerk of the bankruptcy court mails a copy of the discharge order to your creditors, informing them that the debts they are owed have been discharged and that they should not attempt further collection.

Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged.

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ARE ALL OF THE DEBTOR’S DEBTS DISCHARGED OR ONLY SOME?

Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code. The Bankruptcy Code specifically excepts various categories of debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as the debtor’s drunken driving). There are 19 categories of debt excepted from discharge under Chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13.

The most common types of non-dischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, 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 the debtor’s operation of a motor vehicle while intoxicated, and debts for certain condominium or cooperative housing fees.

A slightly broader discharge of debts is available to a debtor 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.

Under Chapter 13, there are also some limited circumstances under which you may request the court to grant a “hardship discharge” even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control.

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DOES THE DEBTOR HAVE THE RIGHT TO A DISCHARGE OR CAN CREDITORS OBJECT TO THE DISCHARGE?

In Chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the United States trustee. A creditor who desires to object to the debtor’s discharge must do so by filing a complaint in the bankruptcy court before the deadline set out in the notice sent out. A Chapter 7 discharge may be denied for any of several reasons, including the 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 a Chapter 7 or 11 case commenced within six years before the date the petition was filed.

In Chapter 13 cases, the debtor is entitled to a discharge upon completion of all payments under the plan. The Bankruptcy Code does not provide grounds for objecting to the discharge of a Chapter 13 debtor.

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CAN A DEBTOR RECEIVE A SECOND DISCHARGE IN A LATER CHAPTER 7 CASE?

A discharge will be denied in a later Chapter 7 case if the debtor has been granted a discharge under Chapter 7 or Chapter 11 in a case filed within six years before the second petition is filed. The debtor will also be denied a Chapter 7 discharge if he or she previously was granted a discharge in a Chapter 13 case filed within six years before the date of the filing of the second case unless (1) all the “allowed unsecured” claims in the earlier case were paid in full, or (2) payments under the plan in the earlier case totaled at least 70 percent of the allowed unsecured claims and your plan was proposed in good faith and the payments represented your best effort.

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CAN THE DISCHARGE BE REVOKED?

A discharge can be revoked under certain circumstances. For instance, a trustee, creditor, or the United States trustee may request that the court revoke your discharge in a Chapter 7 case based on allegations that you obtained the discharge fraudulently; that you failed to disclose the fact that you acquired or became entitled to acquire property that would constitute property of the bankruptcy estate; or the debtor committed one of several acts of impropriety described the Bankruptcy Code. It is up to the court to determine whether such allegations are true and, if so, 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.

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MAY THE DEBTOR PAY A DISCHARGED DEBT AFTER THE BANKRUPTCY CASE HAS BEEN CONCLUDED?

A debtor who has received a discharge may voluntarily repay any discharged debt. You may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.

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WHAT CAN THE DEBTOR DO IF A CREDITOR ATTEMPTS TO COLLECT A DISCHARGED DEBT AFTER THE CASE IS CONCLUDED?

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.

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CAN AN EMPLOYER TERMINATE A DEBTOR’S EMPLOYMENT SOLELY BECAUSE THE PERSON WAS A DEBTOR OR FAILED TO REPAY A DISCHARGED DEBT?

The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has 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. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case.

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DOES A PREVIOUS BANKRUPTCY PREVENT ME FROM FILING?

It depends on:

  • what chapter you want to file now
  • what chapter you filed before
  • whether you received a discharge in the earlier case

You can only get a Chapter 7 discharge if a previous Chapter 7 case was filed more than 8 years ago.

If you got a Chapter 13 discharge within 6 years, the Chapter 13 plan has to meet certain repayment requirements to permit a Chapter 7 case within 6 years.

If your previous case was dismissed before discharge, it does not count in these considerations.

You can only receive a Chapter 13 discharge if you have not received a discharge from another Chapter 7, 11, or 12 case within the last 4 years.

You can freely convert a pending case from one chapter to another. It is the same case, even though the chapter is different, so these time considerations don't apply. Generally, you can only convert a Chapter 7 to Chapter 13 before the discharge is entered.

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HOW DO I FILE FOR BANKRUPTCY? IS THERE A CHARGE?

A bankruptcy case is commenced by the filing of a petition. You must also file a statement of your assets and liabilities, and schedules listing your creditors.

There is a range of filing fees for bankruptcy cases, depending on the chapter of the bankruptcy code under which you file. Chapter 7, by far the most common form filed by individuals, involves an almost complete liquidation of the assets of the debtor, as well as a discharge of most debts. You must pay a fee of $299 to file a case under Chapter 7, which includes a $245 filing fee, a $39 miscellaneous fee, and a $15 trustee fee.

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