The main reason people file for bankruptcy is to get our from under burdensome debt. This is accomplished through the bankruptcy discharge: a court order, issues at the end of a bankruptcy case, that discharges (erases) most or all of the filer's debts.
But not all debts can be discharged in bankruptcy. Which debts are discharged depends on the type The bankruptcy discharge varies depending on the type of case a debtor files: Chapter 7, 11, 12, or 13. This article explains the bankruptcy discharge, including the timing, the scope, objections to discharge, and revocation of the discharge. It also describes what a debtor can do if a creditor attempts to collect a discharged debt after the bankruptcy case is concluded. Click on the questions below to go to that section of this page:
1. What is a discharge in bankruptcy?
2. When does the discharge occur?
3. How does the debtor get a discharge?
4. Are all the debtor’s debts discharged or only some?
5. Does the debtor have a right to a discharge or can creditors object to the discharge?
6. Can the debtor receive a second discharge in a later chapter 7 case?
7. Can the discharge be revoked?
8. May the debtor pay a discharged debt after the bankruptcy case has been concluded?
9. What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
10. May an employer terminate a debtor’s employment solely because the person was a debtor or failed to repay a discharged debt?
A bankruptcy discharge is a court order that releases the debtor from personal liability for certain types of debts. The debtor is no longer legally required to pay any debts that are discharged, and creditors are prohibited from taking any action to collect on the discharged debts. Although a debtor is relieved of personal liability for all debts that are discharged, a creditor may still be able to repossess property that secures a debt. Even though the debtor will no longer be personally liable for the underlying debt, the creditor still has the right to take back its property.
For more information, see Your Debts in Bankruptcy.
A bankruptcy discharge is granted at the end of the bankruptcy case. How long it takes depends on what type of case is filed. In a Chapter 7 case, for example, the court usually grants the discharge after the deadlines passes for creditors or the trustee to file a complaint objecting to discharge or a motion to dismiss the case for substantial abuse. Typically, this occurs about four months after the debtor initially files for bankruptcy. In a Chapter 13 case, the court grants the discharge soon after the debtor makes all required payments under the Chapter 13 repayment plan. A Chapter 13 case typically lasts from three to five years, so it takes that long to complete the plan and get the discharge.
Unless someone objects, the discharge issues automatically. The clerk of the bankruptcy court mails a copy of the order of discharge to all creditors, the United States trustee, the trustee in the case, the debtor, and the debtor's attorney, if there is one. The notice, which is simply a copy of the final order of discharge, doesn't specify which debts are discharged and which are not. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection.
Not all debts are discharged, although most are. For example, credit card debts, medical bills, and most court judgments and loans are all dischargeable in bankruptcy. If a debt is not discharged, the debtor still has to repay it after the bankruptcy case ends. Certain debts are not discharged because Congress has decided that they should be repaid for public policy reasons, usually because the debt is particularly important to society (for example, child support) or because the debt was incurred due to improper behavior of the debtor (such as drunk driving). There are three types of debts that are not discharged. Some are never discharged under any circumstances, including certain types of tax claims: debts for spousal or child support or alimony; fines, penalties, and restitution; debts for personal injuries caused by the debtor’s operation of a motor vehicle while intoxicated; and debts for certain condominium or cooperative housing fees. Other debts are not discharged unless the debtor can prove that they should be. These include most student loans, as well as income tax debts. The third category of nondischargeable debts are those that are not discharged if a creditor successfully objects. These include debts arising from the debtor's fraud, debts arising from the debtor's willful and malicious acts, and debts that the debtor fails to list on the bankruptcy papers.
For more information, see Your Debts in Bankruptcy.
In Chapter 7 cases, a creditor can object to the debtor's discharge, as can the trustee or the U.S. trustee. Creditors receive a notice shortly after the case is filed that sets out important information about the case, including the deadline for objecting to the discharge. To object, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. A Chapter 7 discharge may be denied for any of the reasons described in the Bankruptcy Code, including transferring or concealing 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; or violation of a court order.
A discharge will be denied in a Chapter 7 case if the debtor received a discharge under Chapter 7 in a case filed within the past eight years, or a discharge under Chapter 13 in a case filed within the past six years (unless the debtor received the earlier Chapter 13 discharge in good faith after paying at least 70% of his or her unsecured debts). (To learn more, see Filing for Bankruptcy Mulitple Times.)
A discharge can be revoked under certain circumstances. For instance, a trustee, a creditor, or the United States trustee may request that the court revoke the debtor’s discharge in a Chapter 7 case if the debtor obtained a discharge through fraud; the debtor intentionally didn't tell the trustee about property that should have been part of the bankruptcy estate; or the debtor refused to obey an order by the bankruptcy court. It is up to the court to determine whether such allegations are true and, if so, to revoke the discharge.
A debtor who has received a discharge may voluntarily repay any discharged debt, even though it can no longer be legally enforced. A debtor might agree to repay a discharged debt to someone with whom the debtor has an important ongoing relationship, such as a family member, doctor, or local merchant.
If a creditor attempts to collect on a discharged debt, the debtor should immediately send a letter to the creditor, explaining that the debt was discharged and insisting that the creditor stop its collection efforts. If the letter doesn't help, the debtor can sue the creditor for harassment. If the creditor tries to sue to collect the debt, the debtor can ask that the case be transferred back to the bankruptcy court.
The law prohibits private employers from firing an employee solely because he or she filed for bankruptcy. However, the law is unclear as to whether employers may refuse to hire someone because of a bankruptcy case.
For more information, see Postbankruptcy Discrimination: What Is and Isn't Legal.