The bankruptcy discharge is a court order that prohibits a creditor from collecting on the debts you list in your bankruptcy case. In other words, when the court enters the discharge, you no longer have any personal responsibility for the debt. The creditor cannot call, send demand letters, report nonpayment of the debt to credit reporting agencies, file a lawsuit against you, or take any other action against you personally in an attempt to collect the debt.
Here are some important things to know about the bankruptcy discharge.
The Discharge Does Not Get Rid of Liens on Secured Property
Although a discharge relieves you of your personal responsibility on a debt, if does not get rid of a lien that a creditor may have on your property. The creditor can repossess and sell the collateral to recover at least some of the money you borrowed.
To avoid repossession, you may be able to reaffirm the debt or redeem the property. In a reaffirmation agreement, you remove the debt from the bankruptcy proceeding when you agree to continue making payments in exchange for keeping the secured property. When you redeem the property, you satisfy the lien by paying the value of the property to the creditor in a lump sum. To learn more about reaffirmation and redemption, see Secured Debts in Chapter 7 Bankruptcy.
Only Individuals Get Bankruptcy Discharges
Only individuals are eligible for a bankruptcy discharge. Corporations, partnerships, and municipalities are not.
The Discharge Comes at the End of the Case
The court usually issues the bankruptcy discharge at the end of a Chapter 7 or Chapter 13 case. This means you'll get your discharge after you have
- completed all requirements for your case
- attended the meeting of creditors (and the confirmation hearing in Chapter 13)
- provided the court with accurate records of your debts, assets, income, and financial dealings
- participated in a session with a credit counselor and taken a financial management course, and
- if filing under Chapter 13, made all of your payments under your repayment plan.
Not All Debts Are Dischargeable
The bankruptcy code lists certain types of debts that are not discharged. These include recent taxes, student loans (unless you can prove undue hardship), alimony, and child support. After the court issues the discharge, creditors that hold nondischargeable debts are free to continue their collection efforts within the bounds of state and federal law. (Learn which debts you cannot discharge in Chapter 7 and which debts you cannot wipe out in Chapter 13.)
For certain other debts, the creditor must file a lawsuit within the bankruptcy case asking the judge to declare that the bankruptcy will not discharge the debt. Debts that arise out of fraud committed by the debtor, or for personal injury caused by the debtor while intoxicated, are debts that can be nondischargeable. (Learn more in Nondischargeability Complaints in Bankruptcy.)
The Court Can Revoke or Deny Your Discharge
If you fail to cooperate with the court or the trustee, are not truthful on the paperwork or in your testimony, fail to turn over assets, or are otherwise undeserving of a discharge, the court can deny your discharge. Likewise, if the court learns after the discharge was entered that you committed some act that would have caused the court to deny your discharge during the case, the court can revoke the discharge that it already entered. (Learn more in Objections to the Bankruptcy Discharge.)