Obtaining a bankruptcy discharge is the primary reason why individuals file a Chapter 7 bankruptcy case. It is the “fresh start” which allows debtors to move on with their life without the stress and worry caused by unpaid debts. A discharge is a court order that permanently relieves the debtor from any legal obligation to pay debts which were owed when the case was filed. The discharge is usually entered within four months after the case is filed, although this can sometimes be delayed. Once a debt has been discharged, the creditor is prohibited from taking any collection action on that debt, including calling, sending letters, or filing a lawsuit. Creditors and lenders can, however, enforce any liens attached to secured debts, such as mortgages and vehicle loans. If payments are not made on these loans, these creditors can still foreclose or repossess property attached to a lien, even after the associated debt has been discharged.
If any creditor tries to collect a discharged debt, the debtor can file a motion with the court and have the case reopened. The creditor can be ordered to pay the debtor sanctions if the court finds that the creditor violated the discharge injunction. Usually sending a copy of the discharge order will stop such collection activity, however if that is not successful, an experienced bankruptcy attorney should be consulted.
Debts that are usually discharged in bankruptcy include credit card debts, medical bills, lawsuit judgments, personal loans, obligations under a lease or other contract, and other unsecured debts. There are some types of debt, however, that cannot be discharged in Chapter 7. These include domestic support obligations such as alimony and child support, fines and restitution orders owed from a criminal or traffic case, student loans (in almost all cases), HOA dues which became due after the bankruptcy was filed, and income taxes which became due in the three years before the case was filed.
There are other less common debts which are also non-dischargeable. Additionally, creditors who claim that a debt was incurred by fraud, theft, embezzlement, or willful and malicious conduct can file a Complaint against the debtor in the bankruptcy case asking that their debt be ordered non-dischargeable, however this must usually be done within several months after the bankruptcy case is filed.
A debtor’s discharge can also be denied or revoked for making false statements in the bankruptcy Schedules and Statement of Financial Affairs, failing to disclose assets, transferring assets before or during the bankruptcy, or failing to cooperate with the Chapter 7 Trustee in the Trustee’s collection and liquidation of non-exempt assets.
A debtor who has received a discharge is allowed to voluntarily repay any debts which were discharged, including loans from friends and family, however no creditor is allowed to ask that the debt be voluntarily repaid.
A discharge does not prevent a creditor from collecting the debt against a co-signer on the debt, although co-signer spouses in community property states such as California have certain protections under bankruptcy law.
Debtors trying to discharge their debts should always use the services of an experienced bankruptcy attorney to make sure that all possible debts are discharged. Advance planning with an attorney can make the difference in whether some debts are discharged or not.