Effects of a Bankruptcy Discharge

When people become burdened with debt one of the options is to file bankruptcy. There are basically six different chapters all of which serve different needs and have different outcomes. One of the desirable outcomes of filing bankruptcy is to receive a discharge of debts.

Once a debtor has filed bankruptcy and the creditors have been notified, they are legally obliged to stop harassing you. This is the first step and is a welcome relief to the debtor. However, under chapter 7, 11, 12 & 13, the ultimate relief is to have certain debts discharged. This means that the creditor cannot attempt to recover that debt.

A discharged debt gives permanent release from the burden of that specific debt. The creditor cannot make any further attempts to recover the debt, cannot continue to harass the debtor for repayment and is prohibited from suing for that debt.

Not all debts can be discharged. For example, any debts incurred as a result of drunk driving or fines of any kind are not able to be discharged. Alimony and child support also cannot be discharged; student loans are extremely difficult to have discharged and only if significant on-going hardship can be proven. Creditors are able to petition the court to prevent discharge of certain debts under chapter 7 especially where fraud is involved. This must be done within a specific time frame and the creditor must defend the claim in court.

Discharge occurs after different periods of time depending on the particular chapter the petition was filed under as each chapter is for a particular set of circumstances and proceeds in specific stages. With Chapter 7, the liquidation approach, discharge usually takes around four months, but with chapter 13, where the debtor has a regular income and presents a plan to repay specific debt, discharge comes once the planned payments are completed. This is usually five years and the same time frame can be anticipated for chapters 11 and 12 as well. Under chapter 13, it is possible to get a ‘hardship’ discharge even when the plan has not been completed.

The release from the burden of debt that comes following a discharge is unlikely to be revoked unless the debtor has been found to have acted fraudulently in some way or failed to disclose significant information. This is usually only possible within one year of the discharge.

Sometimes, following discharge a debtor’s situation improves dramatically and the debtor has the desire to repay a debt anyway. This voluntary repayment is possible, but the creditor is not allowed to start any proceedings or requests for repayment. Should activity of this kind on the part of a creditor begin again it is considered a violation of the legal discharge and can have negative consequences for the creditor if the debtor brings the matter to the court’s attention.

Assuming the debtor has been honest and acted appropriately when making the required disclosure, a discharge is a permanent release from both harassment and debt. As a result, the individual is in a position to begin life afresh.

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