A bankruptcy discharge is the desired result of a bankruptcy case. It means there's a court order in your bankruptcy case that removes your debts. You no longer have to pay your creditors once the court has discharged your debts. Bankruptcy discharge occurs in both Chapter 7 and Chapter 13 bankruptcy.
Which debts are not discharged?
Declaring bankruptcy doesn't wipe out all debts. Certain obligations cannot be discharged, including:
- Child support
- Mortgages, co-op, condo, and homeowners' association fees
- Certain tax obligations
- Criminal fines and penalties
- Debts incurred by fraud
- Debts you owe because of a DUI/DWI injury or death
- Debts arising from your own wrongdoing
- Student loans
- Car loans
- Debts secured by liens
- Debts that haven't been discharged from your prior bankruptcy case
- Court costs
- Debts you haven't listed in your bankruptcy case
Which debts are discharged?
The court will allow you to discharge many debts in your bankruptcy case. Some of these debts include:
- Credit card and consumer debt
- Medical bills
- Personal loans to friends or family members
- Business debts
- Past utility bills
- Attorneys' fees
- Judgments in lawsuits
- Money due according to contract
- Past due rent
- Civil court judgments
- Certain tax penalties
- Some debts you've incurred from car accidents
- Unsecured debts
Bankruptcy discharge vs. dismissal
A discharge in bankruptcy in a Chapter 13 case happens when you've finished repaying what you agreed to pay, according to the bankruptcy plan you arranged with the court. A Chapter 13 case requires monthly payments for from three to five years. Discharge in Chapter 13 cases happens after the three to five years is up and all of the agreed-upon debt has been repaid.
In a Chapter 7 case, the trustee sells your assets to satisfy your debt. A bankruptcy discharge in a Chapter 7 case takes place about four months after you file the petition. At the end of your Chapter 7 bankruptcy case, the court discharges your debt. You will no longer owe money to the creditor.
A bankruptcy dismissal is not what you want in your case, because you'll continue to owe the debt. The court can dismiss your Chapter 13 case if you can't make your payments, or the court can dismiss your Chapter 7 case if you don't have enough assets to sell to pay off your debt. The court can dismiss both Chapter 13 and Chapter 7 bankruptcy cases for several reasons, such as your failure to take the required credit counseling course, if you have too much income to declare bankruptcy, or if the court believes you've committed fraud by charging credit cards without the intent to repay them.
Can your bankruptcy discharge be denied?
Yes, in certain instances. If the court dismisses your case, you will continue to owe your creditors. Likewise, if a creditor is a secured creditor—where the creditor has a lien on your car or your house—you will still owe the secured creditor. A court also can deny your discharge for the following reasons:
- Failure to abide by your court order
- Hiding financial information that is subsequently discovered
- Defrauding your creditors by transferring assets
- Failure to take the required financial management and credit counseling courses
- Committing perjury on your bankruptcy petition or in your case
- Having insufficient assets to repay your debt or part of your debt in a Chapter 7 case
Bankruptcy discharge of tax debts
The bankruptcy court will not discharge most taxes, no matter what type of bankruptcy case you file. If the government filed a lien on your property before you filed bankruptcy, you still have to pay the taxes to remove it.
You can discharge tax debts under certain conditions. Discharging tax debts can only happen when:
1. The tax is income tax.
2. The tax was due at least three years before you filed your bankruptcy case.
3. You filed your tax return on time.
4. You didn't avoid paying your taxes.
5. You didn't commit fraud in your tax return.
What happens to a discharged debt in bankruptcy?
Once the court discharges debts in bankruptcy, it sends a copy of the bankruptcy order to your creditors. A creditor, collection agency, or attorney cannot collect the debt. The creditor or collection agency can't sue you for the debt. Also, the IRS cannot tax you for the discharged debt. The discharged debt, however, will appear on your credit report.
When creditors still call after a bankruptcy discharge
If creditors are still calling you after the court has discharged your debts, you can sue them for contempt. If the creditor claims he doesn't know about your bankruptcy, advise him and let him know you have an attorney. He probably knows because he received a copy of the court order advising that you can sue him if he continues to call.
While a collector can't contact you ever again about the debt, that doesn't mean he can't try to repossess the item, such as a car or anything else the creditor has secured by a lien. If you have such property, you should speak with your bankruptcy attorney to prevent repossession.