The most important part of a bankruptcy case for many individual debtors is the bankruptcy discharge—the order that wipes out qualifying debt, such as credit card balances, utility bills, and medical debt.
Once entered, the filer is no longer responsible for the discharged debt, and a creditor can’t call, send demand letters, report nonpayment of the debt to credit reporting agencies, file a lawsuit, or take other actions to collect the discharged debt.
If your bankruptcy chapter proceeds as planned—you satisfied all requirements and no one successfully objects to your filing—you’ll receive the discharge at the end of your matter after you’ve done the following:
The court will notify you by mailing out a document called an “order of discharge.” The order won’t close your case, however. The case will remain open until the bankruptcy trustee—the official who manages your matter—disperses available money to creditors, or until any outstanding bankruptcy litigation ends.
Timewise, in a Chapter 7 case, the court sends out the order approximately three to four months after filing. In a Chapter 13 bankruptcy, the discharge comes after completing the three- to five-year repayment plan. It will wipe out any remaining dischargeable debt balances at that time.
(Learn more in Debts Discharged at the End of Chapter 13 Bankruptcy.)
No—and many find this fact surprising. Instead of listing the wiped out debt, the order will provide general information about debt categories that don’t go away in bankruptcy (nondischargeable debt). For instance, it will explain that you’ll likely remain responsible for paying:
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 the court might declare are nondischargeable.
Liens Remain on Property
Although a discharge relieves you of your responsibility to pay a debt, it won’t get rid of a lien that a creditor might have on your property. A lien allows the creditor to repossess and sell the collateral to recover at least some of the money you borrowed if the debt remains unpaid—even if the court discharged the debt in your bankruptcy case. Some liens can be removed, however, even after the closure of the bankruptcy case. A local bankruptcy lawyer will be able to advise you about your options. (Learn more in What Happens to Liens in Chapter 7 Bankruptcy?)
After the court issues the discharge, creditors holding nondischargeable debts are free to continue collection efforts. Although the order doesn’t provide the clarity that many debtors desire, it might be helpful to understand that creditors are expected to know whether a particular debt is dischargeable.
Protections exist, too. A creditor that attempts to wrongfully collect a discharged debt is subject to paying for any resulting losses.
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 that you committed some act that would have caused the court to deny your discharge, the court can revoke it.
(Learn more about Objections to the Bankruptcy Discharge.)
It’s not a bad idea to keep your discharge paperwork somewhere you can easily find it because you might need it in the future. For instance, a lender might ask for a copy if you apply for credit or a home mortgage. Also, you’ll want to be able to provide the following to any creditor that calls to collect a discharged balance:
The information allows the creditor to verify the bankruptcy and that the discharged debt is no longer collectible. You’ll find the filing date and case number at the top of almost any document you receive from the court. The discharge date will appear on the left-hand side of the discharge order immediately next to the issuing judge’s name (you’ll find the case number in the top box).
Why does the filing date matter? Qualifying debts that you incur before you file for bankruptcy are eligible for discharge. Any debts that arise after you file for bankruptcy aren’t included in the bankruptcy.
Why does the discharge date matter? Just because you file for bankruptcy doesn’t mean that you’ll receive a discharge, as discussed above. Being able to provide the discharge date will help you resolve a collection issue more expediently.