Most clients ask similar questions during a bankruptcy consultation. One familiar question that I am asked is “What is a bankruptcy discharge?” The immediate follow-up question is “How can it help with my debts?” Before I answer either of these questions, I tell my clients that a bankruptcy discharge is the ultimate goal for any debtor in a bankruptcy case and it is my job as an attorney to assist you through the bankruptcy process to achieve that goal. Below is a brief discussion that answers these two questions more thoroughly.
What Is A Bankruptcy Discharge?
Simply put, a bankruptcy discharge relieves the debtor of all personal liability for debts that are discharged through the bankruptcy case. For each debt that is discharged, the debtor is no longer required to repay those debts. A bankruptcy discharge prevents creditors from taking any further action to collect the debt including contacting the debtor in writing or by telephone about the debt, beginning or continuing a lawsuit to collect the debt or turning over the debt to a collection agency to pursue. The discharge is an order from the bankruptcy court and penalties exist for creditors who violate a discharge order.
However, some debts are not discharged through a bankruptcy case. Most taxes, student loans, alimony, child support are usually not subject to discharge. This means that you must pay those debts even though your bankruptcy case was filed. Furthermore, even though you may be personally relieved of the liability to pay a secured debt such as a mortgage or car loan, if you fail to make the payments, the creditor is permitted to enforce the lien in state court (i.e. a foreclosure or repossession).
Receiving a Bankruptcy Discharge
Prior to receiving a discharge, the Bankruptcy Code requires that you complete a mandatory Financial Management Course (also known as a Debtor Education Course) that is designed to help you manage your personal finances in the future. Debtors who fail to complete this course before the deadline will not be granted a discharge and remain liable for all debts included in the bankruptcy. These courses are available online, in person or by telephone. They are usually short, informational or instructional courses (about 120 minutes in length) that provide valuable information to the debtor to help with money management in the future.
A bankruptcy discharge is granted by the court automatically unless a creditor or other party in interest files an objection to the discharge or the debtor fails to complete the mandatory education course. In a Chapter 7 bankruptcy case, a debtor receives the discharge in about four months after filing the case. In a Chapter 13, the debtor will not receive a discharge until all payments have been paid pursuant to the debtor’s plan of repayment (between three and five years depending on the length of the bankruptcy plan). The clerk of court will mail the debtor, his attorney and all creditors a copy of the Order of Discharge.
How Can A Bankruptcy Discharge Help With My Debts?
As discussed above, a bankruptcy discharge relieves you of the personal liability to repay most unsecured debts. The immediate benefit of filing bankruptcy is that creditors are prevented from harassing you about your debts and they are barred permanently from attempting to collect a discharged debt. This means a permanent end to threatening letters, angry telephone calls and stress caused by worrying about unpaid bills. However, a bankruptcy discharge has more benefits than just ending creditor harassment.
A bankruptcy discharge gives you a fresh start so that you can begin to recover from a financial crisis. Because most of your debts are discharged, you have more money to pay your mortgage and vehicle loans so that you are able to retain your home and car. Heading into the future, you have the ability to improve your credit score by making future payments on time so that you can build your credit rating back to where it was before you began experiencing financial problems. Many debtors find that they are in a much better position financially after filing a bankruptcy case than before because of their bankruptcy discharge.
Get the fresh start you need to take control of your finances by requesting a free consultation with a bankruptcy attorney.