What Is A Discharge In Bankruptcy?

A “discharge” is the legal term for “your debts have been wiped out.” Once your debts are discharged by the bankruptcy court, you are no longer obligated to pay them. Creditors are no longer allowed to attempt collection of the debt in any way.

Although a discharge will eliminate unsecured debts, valid liens (judgments against secured debts such as cars and real estate) that have not been eliminated through bankruptcy will remain and a secured creditor may enforce their lien.

When does the discharge occur?

In a chapter 7 bankruptcy case the discharge is granted approximately four months after the petition is filed with the bankruptcy court.

In Chapter 13 bankruptcy cases, the debtor may have to make payments to the trustee for three to five years. The court generally grants the discharge shortly after all the payments have been made. Therefore a discharge in a Chapter 13 may not occur until three to five years after the initial filing of the petition.

Non-Dischargeable Debts

Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code.

Chapter 7

The most common types of Chapter 7 bankruptcy 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;
• debts owed to certain tax-advantaged retirement plans; and,
• debts for certain condominium or cooperative housing fees.

A slightly broader discharge of debts is available in a chapter 13 bankruptcy case than in a chapter 7 case.

Chapter 13

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.

Creditors cannot attempt to collect a discharged debt.

The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action to collect a discharged debt. This includes the filing of a lawsuit by the creditor. 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.

Your employment cannot be terminated because you filed bankruptcy.

The law expressly prohibits any discriminatory treatment of debtors by both government agencies and private employers. A government agency or private employer may not discriminate against a person solely because filed bankruptcy or has not paid a debt that was discharged in the case. The following forms of discrimination are prohibited by government agencies: 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.