What Is a Bankruptcy Discharge?

A bankruptcy discharge is the ultimate goal of a bankruptcy filing. Once a debt is discharged, you are no longer personally liable for that debt. More importantly, creditors that once had rights to collect, sue, levy, or garnish on the debt no longer have enforceable rights against you.

Not all types of debts are dischargeable in bankruptcy.  Furthermore, during and after bankruptcy you still need to make payments on the property, securing a loan like a house mortgage or car loan if you want to keep the property. 

Once the appropriate timelines have run, you will automatically receive a bankruptcy discharge, unless a creditor, trustee, or other party files an objection to the discharge, which is uncommon. Some challenges are for the entire discharge and other challenges are only on certain types of debt (e.g. one credit card company objects to your discharge on some fact the company believes to be true). 

When Debts Are Discharged

The date on which a bankruptcy discharge occurs depends on what type of bankruptcy was filed. In Chapter 7, a bankruptcy discharge occurs approximately three to four months after the date your case is filed. You must have attended a meeting of creditors, complied with all other court requests, and fulfilled the debtor education requirement.  In most cases, the bankruptcy discharge also means the end of your bankruptcy case. While some cases may remain open for asset collection (if not all your property is exempt) or for other administrative reasons, this does not usually affect the discharge date.

In Chapter 13, the discharge occurs only after your case has been completed. In most states, this is after all your plan payments have been made (usually three to five years) and you have completed the debtor education course and any other local requirements the court may have. These can vary greatly from state to state. For example, some jurisdictions require filing forms regarding the current status of domestic support obligations (e.g. child support) or the value of the real estate. It may take several months for the trustee to complete his or her final accounting of your case. At that time the discharge will be filed.

After you receive your discharge, if instructed to do so, you must continue to cooperate with the bankruptcy court and trustee assigned to your case. In rare cases, a bankruptcy discharge can be revoked by a court. 

How Creditors Will Know Your Debts Have Been Discharged

When you file your bankruptcy you must include all your creditors. It is very important to make sure all your creditors are listed in the bankruptcy filing. You have to list all your creditors, even if you want to keep paying a debt after the bankruptcy discharge (e.g. a car loan). This means everyone you owe money to, not just credit card companies and banks. It includes car loans, family loans, landlords, mortgages, medical bills, hospital bills, student loans, taxes, parking tickets, and any other person or creditor to whom you owe money. You do not include your current utility suppliers, but do include past due utility bills (e.g., gas, electricity, or phone bills). 

Once your bankruptcy petition is filed, the court mails a notice to all the creditors you listed. These same creditors get a notice of the discharge. Because the court uses the creditor names and addresses you list in your petition, take extra care to make sure all your creditors are listed and that the notice addresses are correct. If you miss a creditor, the creditor will not receive notice of the bankruptcy filing or the discharge notice. In this case, you might still owe the debt. 

If a Creditor Tries to Collect a Discharged Debt

A creditor is legally barred from collecting debts that were discharged in the bankruptcy. If a creditor or debt collector contacts you (whether by telephone, mail, or email), you should inform the creditor that you filed for bankruptcy, and the debt was discharged. Tell the creditor if you are represented by an attorney. Creditors are barred from contacting you if an attorney represents you.  

If a creditor continues to harass you or ignore the bankruptcy discharge, you can file a motion with the court to report the creditor’s action. Creditors can be reprimanded and fined by a bankruptcy court for violating the discharge. 

However, creditors with collateral do retain some rights after discharge. If you retained collateral of secured debt, like a car, the creditor retains the right to repossess the car (or other collateral) if the debt remains unpaid. 

In the case of a mortgage, liens will remain on the property. If you want to keep your house, and you had enough exemptions to protect it in the bankruptcy, you can keep your house as long as you continue to pay your mortgage per the terms of the agreement.  

Chicago Tax Attorney Lorraine M. Greenberg has been assisting individuals with their tax problems since 1981 and is ready to assist you in these and other matters. Call today at (312) 588-3330 for a FREE and CONFIDENTIAL consultation.