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WHAT IS A CHAPTER 7 BANKRUPTCY DISCHARGE?

A bankruptcy discharge is a court order.  Such order grants a "discharge" (forgiveness and elimination of debt) to the persons named as the "debtor" in the bankruptcy petition.

Collection of Discharged Debts is Prohibited.

The discharge prohibits (makes illegal) any attempt to collect from the debtor a debt that has been discharged. 

For example, a creditor must never contact a debtor by mail, phone, fax, email or otherwise to:

        File or continue a lawsuit; 

        Attach wages or other property; or 

        Seek to collect a discharged debt from the debtor. 

A creditor who violates this order can be required to pay damages and attorney’s fees to the debtor.

Valid Liens Survive Bankruptcy:

However, after the bankruptcy discharge, a creditor may have the right to enforce a valid lien.  Example of such liens typically include a, such as a mortgage or security interest against the debtor’s property.  But if the lien can be and is avoided or eliminated in the bankruptcy case, then the creditor has no lien to enforce after the bankruptcy. 

Voluntary Payment of Discharged Debt is allowed.

A debtor may voluntarily pay any debt that has been discharged.  However, a debtor should contact an attorney for legal advice before doing so.

Most Types of Debts are Discharged.

The Chapter 7 discharge only eliminates a debtor’s legal obligations to pay a debt that is discharged. Most, but not all, types of debts are discharged.  But it is only discharged if the debt existed on the date the bankruptcy case was filed.  

Some Types of Debts are Usually Not Discharged.

Some of the common types of debts which are NOT discharged in a chapter 7 case are:

a. Taxes: Debts for most taxes (but some types of tax debts are sometimes discharged);

Further, debts incurred to pay nondischargeable taxes.  Example: Use a credit card to pay a nondischargeable tax;

b. Alimony / Support: Debts that are domestic support obligations (Examples: Alimony, child and/or spousal support);

c. Student Loans: Debts for most student loans (sometimes a student loan may be fully or partially discharged if undue hardship is proven);

d. Fines/Restitution: Debts for most fines, penalties, forfeitures, or criminal restitution obligations;

e. Drunk Driving / Intoxication: Debts for personal injuries or death caused by the debtor’s operation of a motor vehicle, vessel or aircraft while intoxicated;

f. Non-Listed/Improperly Debts: Some debts which were not properly listed by the debtor (If this happened, however, call an attorney for advice before assuming the debt is not discharged!);

g. Court-Ordered Non-Dischargeable: Debts that the bankruptcy court specifically decided or will decide in this bankruptcy case are not discharged (example: Debts incurred by proven fraud);

h. Reaffirmed Debts: Debts for which the debtor has given up the discharge protections by signing a reaffirmation agreement in compliance with the Bankruptcy Code requirements for reaffirmation of debts.

i. Loans from Retirement Accounts: Debts owed to certain pension, profit sharing, stock bonus, other retirement plans, or th the Thrift Savings Plan for federal employees for certain types of loans from these plans.

This information is only a general summary of the bankruptcy discharge. There are exceptions to these general rules. The law is complicated.  You may want to consult an attorney to determine the exact effect of the discharge in this case. 

See sample Chapter 7 bankruptcy court discharge order.

For a free and confidential pre-bankruptcy consultation contact Christian bankruptcy attorney Matthew B. Tozer.  

 Disclaimer

Under the new bankruptcy laws, Mr. Tozer is a debt relief agency because he helps people file for bankruptcy relief under the Bankruptcy Code.

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