What Bankruptcy Code section governs the Discharge in Chapter 7?
11 U.S.C. § 727
What Bankruptcy Code section governs the Discharge in Chapter 13?
11 U.S.C. § 1328
What is a Discharge?
A Discharge in Bankruptcy eliminates a person’s personal obligation on certain kinds of debts that he/she had on the date the bankruptcy case was filed. Please review the following example:
Person A has $20,000.00 in credit card debt owed to Visa. Person A in turn files for Chapter 7 Bankruptcy. Person A successfully completes her Chapter 7 Bankruptcy and receives a Discharge. Once that Discharge is entered, Person A now has no liability on that $20,000.00 in credit card debt. In fact, her obligation has been eliminated and she now owes $0.00 on that same $20,000.00.
When do you receive the Discharge?
The timing as to when a Discharge actually is entered depends on the type of Bankruptcy case a person actually files. Two people can file for Bankruptcy relief on the same day but receive their discharge years apart. Please review the following two examples of when a Chapter 7 and Chapter 13 Discharge is entered:
Person A files for Chapter 7 relief on 01/01/2022. Generally speaking, a Meeting of Creditors is scheduled for approximately 30-45 days in the future. Person A’s Meeting of Creditors is scheduled for 02/01/2022. From there, the Court generally needs to wait 60 days for the time to run on creditors having the ability to object to the discharge. Assuming no objections occurs, the Court enters the Discharge promptly thereafter. Thus, Person A receives his Discharge on 03/02/2022.
Person B files for Chapter 13 relief on 01/01/2022 (same day as Person B). Again, the Meeting of Creditors is scheduled for Person on 02/01/2022. Chapter 13 is where the debtor enters a court administered payment plan to pay back certain debts. That payment plan is generally anywhere from 3 years in length to 5 years in length. Person B had filed a 5-year Chapter 13 Payment Plan. Upon the completion of the 5-year payment plan, the Court needs to ensure certain things have been accomplished. That process generally takes anywhere from 3 months to 6 months. Assuming those obligations have been, the Court enters the Discharge promptly thereafter. Thus, Person B receives his Discharge on 06/01/2027.
Is issuing a Discharge “of-right” for a Debtor or can objections limit the Discharge?
Chapter 7 and Chapter 13 cases have different ways of looking at this. In a Chapter 7 case, just because you file for Chapter 7 relief does not guarantee that you will be issued a Discharge as explained above. Once the case is filed, the Court will schedule a Meeting of Creditors. On that notice, the Court will also notate several key dates, most notably the deadline to file objections to discharge. Thus, if a creditor feels they have a legal right to have their debt excepted from the Discharge Order, they would likely file an Objection to the Discharge timely. If the Judge ends up siding with the Creditor, that specific debt could be excepted from Discharge. The Trustee or United States Trustee can also file objections to discharge if certain requirements aren’t met, among other things. If this is withheld by the Judge, the entire Discharge Order could be at risk of ever being entered.
In a Chapter 13, a creditor would not necessarily object to the Discharge. In Chapter 13, the debtor is proposing pay certain debts over a specified time. Thus, if a creditor has an issue, they would file an objection to the confirmation of the plan. If that objection is withheld, the debtor would need to address that objection in an amended plan. If they are still unable to propose a plan and have the Judge confirm that plan, the creditor and/or Trustee can move to dismiss the case in its entirety. If the case is dismissed, no Discharge can be entered in that specific case.
How many Discharges can a person receive?
While there is no actual limit on how many discharges a person can receive, there are limits on how often a Debtor can file a new bankruptcy case and be eligible for a discharge in that case. If your prior case was a Chapter 7 and you received a Discharge in that case, you would need to wait 8 years to file another Chapter 7 or 4 years to file a Chapter 13 and be eligible for a Discharge in that second case. If your prior case was a Chapter 13 and you received a Discharge in that case, you would need to wait 2 years to file another Chapter 13 or 6 years to file a Chapter 7 and be eligible for a Discharge in that second case
*The waiting period is from filing date to filing date
Can you Discharge a debt but still pay it?
The debtor is not prohibited in continuing to voluntarily pay on a discharged debt. In fact, this happens quite often. Assuming a person files Chapter 7 bankruptcy and receives a Discharge, they would eliminate their personal obligations on certain debts. Let’s say this person had a car loan, house loan, and money owed to a family member. If they want to keep the car or the house, they would continue to voluntarily pay that discharged debt. Also, even though they do not legally owe their family member any money any longer, they can still continue to pay that family member post-discharge if they wish.
What happens if a creditor attempts to collect on a discharged debt?
Even though a Discharge has been entered, nobody can guarantee to you that the creditor will not violate that Discharge Order. However, assuming the Creditor does violate the Discharge Order and is demanding payment from you, you have options. The first thing you should do is contact your attorney to see if they can informally resolve it by speaking with the Creditor. If that doesn’t work, your attorney can then re-open your bankruptcy case and file a motion for violation of the Discharge Order. The court does not take these lightly and if you properly prove to the court the violation, the Court could order sanctions against the creditor and even require that the Creditor pay your attorney fees.
Will all of my debts be discharged?
This obviously depends on the nature of your debts but overall, certain debts are not discharged in your Bankruptcy case. Congress created a Code Section to enumerate a list of debt types that not discharged, either automatically or by the creditor having their request granted by the Judge. The code section for Discharge Exceptions is 11 U.S.C. § 523.
This code section lists 19 separate categories of various types of debt that are not discharged for Chapter 7 cases. This varies slightly for Chapter 13 cases. The majority of these exceptions are automatically issued as long as the Code’s language applies. Some of the common types that will automatically be excepted from discharge are particular kinds of tax debts, alimony and/or child support obligations, debts to a government unit for a penalty or fine, student loan debts, and debts for injury to another person which was caused by operating a motor vehicle at a time the Debtor was under the influence of alcohol or drugs.
In contrast, the exceptions listed in 11 U.S.C. § 523(a)(2), (4), and (6) are not automatically issued. These types of debts are only excepted from Discharge if the Creditor makes an affirmative request to the Court and the Judge rules that the debts should be excepted from the Discharge Order. Generally speaking, these debts are the type that were accrued by malicious or fraudulent behavior.
Chapter 13 cases do have a few additional exceptions that aren’t applicable in Chapter 7 case. The most common type of debt that fits into this category is a debt that arises from property settlement in divorce proceedings. Remember, this does not include debts owed for alimony or child support---only specifically ones that arose from property settlement (i.e., equalization payments).
What is a Chapter 7?
Chapter 7 Bankruptcy is a case that is filed by either an individual (i.e., Person A) or by a business entity (i.e., Company A, Inc.). In this Chapter of Bankruptcy, the Debtor is authorizing the Bankruptcy Court to liquidate his/her/their un-protected assets. Upon liquidation of the un-protected assets, those funds would then be paid to certain Creditors in the case. If the case is filed by an individual, the Debtor is eligible to receive a Discharge at the end of the case. This process generally lasts anywhere from 3 to 6 months. In the alternative, if the Debtor is an entity, they are not entitled to a Discharge at the end of the case.
What is a Chapter 13?
A Chapter 13 Bankruptcy case is one that is filed by an individual---business entity are not eligible to file for Chapter 13 relief. Here, the Debtor will be reorganizing his and/or her debt over a three-to-five-year period in most circumstances. Chapter 13 cases are ideal for people with more assets than they can protect, higher income earners, people who need to save a home from foreclosure or a car from being repossessed, among other things. Upon the completion of the Chapter 13 payments and confirmation that all requirements have been met, the Debtor would be issued a Discharge and the case would shortly thereafter close.
Important Bankruptcy Code Sections Discussing Discharge
11 U.S.C. § 523 – Discharge Exceptions
11 U.S.C. § 524 – Effect of the Discharge
Discuss Discharge With A Dedicated Bankruptcy Discharge Attorney
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