What Does Bankruptcy Discharged Mean?
When faced with debts that you cannot pay, it may seem like there is no way out. However, a bankruptcy discharge could release you from personal liability. Before taking any steps, it’s important to know what bankruptcy discharge means and how you can file for an order of discharge in your personal situation.
Given that the average American has over $21,000 in debt from personal loans and credit cards alone, discharged bankruptcy is a relevant topic for many people across the country. Here’s all you need to know about discharged bankruptcies.
The Bankruptcy Discharge Definition
When it comes to the bankruptcy discharge meaning, LawInsider.com defines it as “a court order that ends bankruptcy proceedings as old debt and hence releases the debtor from the responsibility of repaying certain types of debt.”
In essence, a discharged bankruptcy will free you from any obligation to repay the debts covered by the order of discharge. This also means that creditors can no longer take action against you in relation to those debts. Those actions include debt collection, attempts at legal action, and communication with you via letters or telephone calls.
A discharged bankruptcy may occur when you file a Chapter 7, 11, 12, or 13 bankruptcy. Before filing for a discharge order, though, it’s important to recognize the downsides of bankruptcy while also researching which debts can or cannot be discharged.
How Can You Get a Discharge of Bankruptcy Order?
Under most circumstances, debtors are automatically given a discharge during their bankruptcy case unless creditors object. So, by informing your attorney to file for bankruptcy, an order discharging debtor liability will be included as a part of the legal proceedings.
Assuming no litigation involving objections is posted, the Federal Rules of Bankruptcy Procedure will ensure that copies of the order of discharge are provided to the debtor (you), the debtor’s attorney, the US trustee, the case trustee, the trustee’s attorney, and all creditors. The notice of bankruptcy discharge proof also informs creditors that your financial liability has been dropped and advises them not to pursue any further action.
The length of time that it takes to acquire a discharged bankruptcy order depends on the bankruptcy chapter filed. Generally speaking, the timeframes are as follows:
- Chapter 7 (for liquidation): Courts grant discharges following the expiration of a creditor’s complaint objection period, which is usually between 60 and 90 days after your 341 meeting. This generally happens four months after you, the debtor, files a petition at the bankruptcy court.
- Chapter 11(for an individual chapter 11 bankruptcy): The courts grant an order of discharge once you have completed all payments under the bankruptcy agreement.
- Chapter 12 (for an adjustment of debts of a family farmer or fisherman): The courts will also grant the discharge after payments have been completed. Due to the nature of this bankruptcy hearing, it usually takes between three to five years to secure the discharge after the filing date.
- Chapter 13 (for an adjustment of debts for an individual with regular income): The order may be granted by the courts as soon as the agreed payments are finalized. Again, it often takes three to five years after the date of filing.
It should also be noted that you may be required by the Bankruptcy Code to complete an instructional financial management course. However, there are exceptions to this ruling, including a lack of adequate local educational programs or if the debtor is living with a disability.
Understanding the Inclusions of Discharged Bankruptcy Orders
When trying to work out how a bankruptcy discharge is relevant to your personal financial situation, you’ll naturally want to know what types of debt can be discharged. After all, bankruptcy discharge orders don’t cover everything. Section 523(a) of the Bankruptcy Code details a number of exceptions under each chapter of bankruptcy.
When filing a Chapter 7, 11, or 12, there are 19 categories of nondischargeable debts, while the list is a little smaller for Chapter 13. Below are a few examples:
- Certain tax claims
- Child support payments
- Spousal or alimony payments
- Government penalties
- Guaranteed educational loans
- Cooperative housing fees
While secured debts cannot be included, a valid lien or sale of the secured asset can be used to repay the debts, with the shortfall (remaining balance) subsequently being included in the order of discharge.
It should also be noted that obligations affected by fraud or maliciousness won’t automatically be exempted from a discharge. It will be up to creditors to post an objection to these. If they do not, they will be included in the order discharging debtor responsibilities.
Before filing for bankruptcy, it’s important to do your homework or speak to an attorney/financial advisor about the debts that can be discharged and the ones you would be liable to pay.
Bankruptcy Closed vs. Discharged
A bankruptcy discharge order doesn’t necessarily translate into a case closed. In a simple Chapter 7 bankruptcy without assets being lost, the closure should occur a few days after your discharge. When assets are being lost, any relevant litigation must be finalized before closure can occur. In cases where a repayment plan is needed, the closure won’t happen until after the trustee has confirmed the final report for payment distributions.
Generally speaking, it is only the Chapter 7 bankruptcy cases involving difficult assets that are kept open for long periods. Although rare, it is also possible for debtors, creditors, or trustees to reopen the bankruptcy case if a debt hasn’t been listed or if false information has been provided.
What Else You Need to Know About Bankruptcy Discharging
Before thinking about bankruptcy, you must consider the impact it will have on your financial future. For starters, you will still be required to pay secured debts, while the impact on your credit score will last for up to eight years.
Many people who file a bankruptcy worry about what it means for their career, but the good news is that employers are prohibited from discriminatory treatment of debtors based on their bankruptcy status. This covers both public and private businesses. Furthermore, bankruptcy courts may permit those who file for bankruptcy to run businesses even before the discharge. That’s why it’s important to stay up to date on the best business banking options.
A second discharge in a Chapter 7 case will be rejected if you have already received a discharge within the last eight years for a Chapter 7 or 11. This duration is reduced to six years for Chapter 12 and 13 cases. This is unless all unsecured debts from the previous discharge have been cleared.
Finally, you will be advised to keep hold of your bankruptcy discharge proof letter in case creditors attempt to take action against you after the confirmation. Should this happen, you will be in a position to file a motion with the court. Should you lose your copy of the discharge order, it is possible to request another from the clerk at the bankruptcy court for a fee. Electronic documents may also be available via the clerk’s PACER system.
By now, you should have a solid understanding of the bankruptcy discharge meaning in law and how it can impact your future following any proposed bankruptcy. Under the right circumstances, it can be an attractive option that removes some of your financial burdens while also putting an end to annoying calls and debt collection actions.
Creditors may object to a discharge on a Chapter 7 bankruptcy order of discharge by opening an “adversary proceeding”. However, if bankruptcy is genuinely deemed to be the most appropriate action for your finances, the likelihood of a creditor objecting is quite slim. But the case trustee and US trustee could also object.
A bankruptcy discharge letter includes the case number, the chapter, the debtor’s name and Social Security number, the date of discharge, and the name of the presiding judge.
Excluding cases where litigation involving objections is posted, an order discharging debtor obligations from the relevant types of unsecured debt will be made automatically as part of the bankruptcy procedure. Copies of the order will then be sent to all parties (creditors, trustees, debtors, and attorneys).
In Chapter 7 bankruptcy, the courts may revoke a discharge if it’s filed fraudulently or if inaccuracies relating to property acquisition and misstatements are found during an audit. With Chapter 11, 12, or 13 bankruptcies, fraud will lead to the discharged bankruptcy being revoked.
Julia A. is a writer at SmallBizGenius.net. With experience in both finance and marketing industries, she enjoys staying up to date with the current economic affairs and writing opinion pieces on the state of small businesses in America. As an avid reader, she spends most of her time poring over history books, fantasy novels, and old classics. Tech, finance, and marketing are her passions, and she’s a frequent contributor at various small business blogs.
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