In its simplest form, a bankruptcy discharge occurs once a bankruptcy case is finalized and relieves you from any obligations of repaying your debt. Once your debt has been discharged, creditors cannot take any further action to collect on the debt. Creditors and debt collectors cannot call, send letters, or file a lawsuit to collect on the debt. However, they can repossess certain assets and sell them if they act as collateral on the loan, even once the debt has been discharged.
What Is a Discharge in Bankruptcy?
When a debt is discharged in bankruptcy, it literally goes away. Creditors and debt collectors can no longer try to recover the debt and they must write it off. Debts that are most commonly written off in bankruptcy include medical bills, credit card debts, personal loans, lawsuit judgments, lease or contractual obligations, and other unsecured debts.
Bankruptcy may seem too good to be true to some, but there are some disadvantages. If you receive a discharge in bankruptcy, it will negatively impact your credit score and history, potentially for a long period of time. You must also prove to the court that you need the discharge and that you are not seeking a discharge simply because you do not want to pay the debt. You may also have to take a financial management course, or the court may not approve a discharge.
How Does a Bankruptcy Discharge Work?
If the court approves the discharge, the order is mailed to all of your creditors, to the bankruptcy trustee, and to the bankruptcy trustee’s lawyer. The order will include a statement that creditors are no longer allowed to take any action to collect the debt, or they may be found in contempt of court.
You should also keep a copy of the discharge order with the other paperwork pertaining to the bankruptcy case. Having a copy of these documents can help when you are trying to correct issues on your credit report or when creditors are trying to collect from you.
If creditors still try to collect on a discharged debt, you can send them a letter with a copy of the order asking them to stop the collection activity. If that does not work, you should speak with a bankruptcy attorney. You may have to take legal action, which could include filing a motion with the court to reopen the case. If the court does reopen your case and finds that a creditor is trying to collect on a debt, they can be fined for violating the discharge injunction.
Chapter 7 vs. Chapter 13 Bankruptcy Discharges
The most common types of bankruptcy filed by individual debtors are Chapter 7 and Chapter 13 bankruptcy. During a Chapter 7 bankruptcy, the trustee will seize your non-exempt assets and distribute the proceeds among the creditors you still owe a debt to. Any debt that remains once this occurs is discharged.
During a Chapter 13 bankruptcy, you will enter into a repayment plan that typically lasts three to five years. The plan will restructure your debts so they are more manageable for you to pay back. Any debt that remains once the payment plan is over is then discharged. In some cases, a Chapter 13 bankruptcy will discharge some debts that are not discharged in Chapter 7 bankruptcy cases. Marital debt, with the exception of alimony and child support, condo and homeowners’ association fees, and debts that could not be discharged in a previous bankruptcy can all be discharged in a Chapter 13 bankruptcy.
Limits on Chapter 7 Bankruptcy
While a debt discharge in Chapter 7 bankruptcy has many benefits, there are also limitations on the debt that can be discharged.
Debts that cannot be discharged in a Chapter 7 bankruptcy include:
- Debts outlined in a marriage settlement agreement, including alimony and child support;
- Fines, restitution, and other penalties resulting from a criminal conviction;
- Certain taxes, such as business taxes, property taxes due in the year prior to the bankruptcy, and fraudulent income taxes;
- Court fees;
- Homeowners’ association fees and condo fees you incurred after filing for bankruptcy,
- Loans from retirement plans;
- Debts that were not discharged in prior bankruptcies; and
- Debts you did not list on your petition for bankruptcy
Limits on Chapter 13 Bankruptcy
Just as you cannot discharge certain debts in a Chapter 7 bankruptcy, you also cannot discharge all of your debts in a Chapter 13 bankruptcy. These debts include:
- Alimony and child support;
- Fines, restitution, and penalties resulting from a criminal conviction;
- Business taxes and property taxes you incurred in the three years prior to filing bankruptcy;
- Debts you did not include on your bankruptcy petition;
- Debts that resulted from personal injury or death caused by impaired driving; and
- Debts that were a result of fraud or recent luxury purchases
In addition to the above debts that cannot be discharged in bankruptcy, student loans are also very difficult to discharge as part of a bankruptcy case. In some cases, it is not possible at all.
Drawbacks of a Bankruptcy Discharge
The goal of filing for bankruptcy is to secure a discharge that will free you from your obligation to repay your debt. However, there are still some drawbacks to receiving a discharge. The first is that a discharge will only protect you. If you have loans or other debts a person has co-signed for, creditors can still attempt to recover their debt from that person, and can even file a lawsuit against them if the debt goes unpaid.
Additionally, you will have to deal with the consequences of receiving the discharge for years afterward. A discharge in Chapter 13 bankruptcy will remain on your credit report for seven years, while a discharge in Chapter 7 bankruptcy will remain on your credit report for 10 years.
Our Florida Bankruptcy Lawyers Can Help with Your Discharge
A bankruptcy discharge can help you start over again with a clean slate, but a discharge is not always easy to obtain and there still may be some limitations and drawbacks. At Loan Lawyers, our Fort Lauderdale bankruptcy attorneys can explain the laws on bankruptcy and how they apply to your case so you have the best chance of a positive outcome. Call us today at (954) 523-4357 or fill out our online form to schedule a free consultation.
Loan Lawyers in Fort Lauderdale, FL has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.