what is a bankruptcy discharge and how does it work?

what is a bankruptcy discharge and how does it work?

A bankruptcy discharge is a court order that releases a debtor from personal liability for certain types of debts.

This means that the debtor is no longer legally obligated to pay those debts.

Once a discharge is granted, the debtor will no longer be hounded by creditors for payment of those debts. The discharge applies only to the debtor and not to any co-debtors.

There are several types of bankruptcy in which a discharge may be granted, including Chapter 7, Chapter 11, and Chapter 13.

The most common type of bankruptcy for individuals is Chapter 7, also known as a “straight bankruptcy” or “liquidation.”

In Chapter 7, the debtor’s non-exempt assets are sold to pay off creditors, and any remaining debt is discharged.

In Chapters 11 and 13, the debtor’s assets are not sold, but the debtor is required to repay a portion of their debt over a period of time, and any remaining debt is discharged.

Not all debts are dischargeable in bankruptcy.

Some examples of non-dischargeable debts include certain taxes, student loans, most fines and penalties, and debts incurred through fraud or embezzlement.

Additionally, the court may deny a discharge if the debtor has engaged in certain types of misconduct, such as fraud or concealment of assets.

what types of debts can be discharged?

In bankruptcy, certain types of debts are dischargeable, which means that the debtor is no longer legally obligated to pay them.

The types of debts that can be discharged in bankruptcy vary depending on the type of bankruptcy being filed.

The most common type of bankruptcy for individuals is Chapter 7, also known as a “straight bankruptcy” or “liquidation.” In Chapter 7, the following types of debts are typically dischargeable:

  • Unsecured debts such as credit card debts, medical bills, and personal loans
  • Certain types of unsecured loans, such as payday loans or title loans
  • Deficiency judgments resulting from repossession or foreclosure of collateral
  • Certain types of taxes, such as income taxes that are more than three years old

Chapters 11 and 13, also known as “reorganization” bankruptcy, have different rules for dischargeable debts.

In Chapter 11, the debtor’s debts are reorganized and the debtor is required to repay a portion of the debt over a period of time, and any remaining debt is discharged.

In Chapter 13, the debtor is required to repay a portion of the debt over a period of time, and any remaining debt is discharged at the end of the repayment plan.

Some examples of non-dischargeable debts include:

  • Most taxes
  • Student loans
  • Most fines and penalties
  • Debts incurred through fraud or embezzlement
  • Child support and alimony
  • Most debts for personal injury or death that were caused by driving under the influence of drugs or alcohol
  • Debts not listed on the debtor’s bankruptcy petition

It is also important to note that even if a debt is dischargeable, the bankruptcy discharge does not eliminate the debtor’s obligations under any secured loans, such as mortgages or car loans.

In those cases, the debtor must continue making payments on the loans or risk losing the collateral.

It is important to note that a bankruptcy discharge does not mean that the debtor is no longer responsible for any debts that are not discharged.

Also, a bankruptcy discharge does not eliminate the debtor’s obligations under any secured loans, such as mortgages or car loans. In those cases, the debtor must continue making payments on the loans or risk losing the collateral.

Dismissal vs Discharge

A discharge and a dismissal at the conclusion of a bankruptcy proceeding are two distinct outcomes.

A discharge is a court ruling that absolves a debtor of personal responsibility for certain types of debts.

Once a discharge is obtained, creditors will no longer harass the debtor for payment of the discharged obligations.

The discharge solely applies to the debtor, not any co-debtors.

Certain taxes, student loans, the vast majority of fines and penalties, and debts incurred through fraud or embezzlement are examples of debts that cannot be discharged in bankruptcy.

In contrast, a dismissal indicates that the bankruptcy case has been closed without the debtor securing a discharge.

This may occur for a variety of reasons, including the debtor’s failure to comply with court instructions or the debtor’s bad-faith bankruptcy filing.

In this situation, the debtor continues to be responsible for all of their debts, and creditors can continue to pursue collection efforts.

Discharge is a final ruling that releases the debtor from certain forms of debt and is only achievable if the bankruptcy case is successfully closed, whereas dismissal implies the case is closed without the debtor receiving a discharge and the debtor is not released from the debt obligation.

Noting that a dismissal can be with or without prejudice is essential.

A dismissal with prejudice indicates that the debtor cannot file for bankruptcy again in the future, but a dismissal without prejudice indicates that the debtor can file for bankruptcy again in the future.