The Discharge of Debts in Bankruptcy
A discharge gives you permanent relief from all or most of your debts by making illegal any further collection efforts of those debts.
The Legal, Permanent Elimination of Debts
Both Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” usually finish with a discharge of your debts. A discharge leaves you with permanent relief from debts by making any further collection efforts by your creditors illegal.
Most Chapter 7s that are filed result in a discharge of all or most of the debtors’ debts within months.
Chapter 13s take much longer and so have a lower success rate. They require going through a plan of monthly payments lasting usually 3 to 5 years before getting the discharge.
You “Shall” Get a Discharge
The law starts with the assumption that you are entitled to a discharge of your debts through bankruptcy.
There are exceptional situations when no discharge is granted. But generally you’re entitled to a discharge. The burden is on your creditors and your bankruptcy trustee to raise any objections to a discharge. However, there are some specific types of debts that aren’t discharged even if no one objects.
What Happens When Debts are Discharged
In one of the last steps of your case the bankruptcy judge signs a court order discharging your debts. The legal effect of that discharge order is described in Section 524(a)(2) of the Bankruptcy Code as follows:
“[It] operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor… .”
This means that after the court issues the discharge order, your creditors can’t sue you, can’t continue with an ongoing lawsuit against you, and can’t take any action at all to collect the debt. The court clerk sends a copy of the discharge order to all of the creditors on your bankruptcy schedules.
Enforcement of the Discharge
Creditors almost always comply with the discharge order. They don’t try to collect a debt after it has been discharged in bankruptcy because doing so is illegal. It would be a violation of federal law. It would be a violation of a direct federal court order.
Creditors also comply with the discharge because failing to do so could be expensive for them. If a creditor does try to collect a discharged debt, a bankruptcy judge can hold this creditor in contempt of court for violating its order. Depending on the circumstances, the court can make it pay punitive damages, your attorney fees, and other possible sanctions.
The Exceptions to Discharge
Two broad types of exceptions to discharge exist. There are the rare ones that result in no discharge of ANY of your debts. This happens because of circumstances affecting your whole case. And then there are those exceptions which result in just a PARTICULAR debt not being discharged. This happens because of the nature of that particular debt.
We’ll cover these two types of exceptions to discharge in our next blog post.