The bankruptcy discharge varies depending on the type of case a debtor files: chapter 7, 11, or 13.
A bankruptcy discharge releases the debtor from personal liability for certain specific debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is permanent and prohibits the creditors from taking any form of collection action, including legal action against the debtor.
Although a debtor is not personally liable for discharged debts, a valid lien that has not been avoided in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.
The timing of the discharge varies, depending upon the chapter under which the case is filed. In a chapter 7 case, the court usually grants the discharge promptly . Typically, this occurs about four months after the date the debtor files the petition. In individual chapter 11 casesand 13 the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan. The court may deny an individual debtor's discharge in a chapter 7 or 13 if the debtor fails to complete an instructional course concerning financial management.
Unless there is litigation involving objections to the discharge, the debtor will usually automatically receive a discharge. The clerk of the bankruptcy court is required to mail a copy of the order of discharge to the debtor and his/her attorney, all creditors, the U.S. trustee, the trustee in the case and the trustee's attorney, if any. The notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection. They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge.
Not all debts are discharged. The debts discharged vary under each chapter of the Code. Section 523(a) of the Code specifically lists various categories of debts that are exceptions from discharge so the debtor must still repay those debts after bankruptcy. These types of debts are not dischargeable for public policy reasons.
There are 19 categories of debt excepted from discharge under chapters 7 and 11, with a more limited list of exceptions applicable to chapter 13 cases.
Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies. The most common types of non-dischargeable debts include but are not limited to tax claims, debts not set forth by the debtor on the lists and schedules of the petition, debts for spousal or child support or alimony, debts for most government funded or guaranteed educational loans.
A slightly broader discharge of debts is available to a debtor in a chapter 13 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. Although a chapter 13 debtor generally receives a discharge only after completing all payments required by the confirmed plan, there are some limited circumstances under which the debtor may request the court to grant a "hardship discharge" even though the debtor has failed to complete plan payments.
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 U.S. Trustee. Creditors receive a notice shortly after the case is filed that sets forth the deadline for objecting to the discharge. To object to the debtor's discharge, a creditor must file a complaint in the bankruptcy court before the deadline. Filing a complaint starts a lawsuit referred to in bankruptcy as an "adversary proceeding."
The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on personal financial management; 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; or an earlier discharge in an earlier commenced case within certain time frames. If the issue of the debtor's right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.
In chapter 13 cases, the debtor is usually entitled to a discharge upon completion of all payments under the plan. However, discharge may not occur in chapter 13 if the debtor fails to complete a required course on personal financial management. A debtor is also ineligible for a discharge if he or she received a prior discharge in another case commenced within certain time frames. Unlike chapter 7, creditors do not have standing to object to the discharge of a chapter 13 debtor. Creditors can object to confirmation of the repayment plan, but cannot object to the discharge if the debtor has completed making plan payments.
The court may revoke a discharge under certain circumstances. For example, a trustee, creditor, or the U.S. trustee may request that the court revoke the debtor's discharge in a chapter 7 case based on allegations that the debtor: obtained the discharge fraudulently; failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the bankruptcy estate; committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or failed to explain any misstatements discovered in an audit of the case or fails to provide documents or information requested in an audit of the case. Typically, a request to revoke the debtor's discharge must be filed within one year of the discharge or, in some cases, before the date that the case is closed. The court will decide whether such allegations are true and, if so, whether to revoke the discharge.
In chapter 11, and 13 cases, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.
A debtor who has received a discharge may voluntarily repay any discharged debt, even though it can no longer be legally enforced.
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, the debtor 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. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.
May an employer terminate a debtor's employment solely because the person was a debtor or failed to pay 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. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
If the debtor loses or misplaces the discharge order, another copy can be obtained by contacting the clerk of the bankruptcy court that entered the order. The clerk will charge a fee for searching the court records and there will be additional fees for making and certifying copies. If the case has been closed and archived there will also be a retrieval fee, and obtaining the copy will take longer.
The discharge order may be available electronically. The PACER system provides the public with electronic access to selected case information through a personal computer located in many clerk's offices.
This article is not legal advice and is not intended as legal advice. This article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. You should consult with an attorney familiar with the issues and the laws of your jurisdiction. This article does not create any attorney-client relationship.