What is a discharge in bankruptcy?
A discharge in bankruptcy is a dismissal of debt that has become unmanageable to the debtor. According to bankruptcy law, a person who files for Chapter 7 or Chapter 13 bankruptcy and obtains a "discharge" becomes legally free and clear of any obligation to repay certain debts. The balance owed is gone and the creditor no longer has any right to collect that debt. In short, a discharge in bankruptcy of a particular debt means that the debtor no longer has any obligation to repay it.
The timing of the discharge of debt varies depending on the chapter of bankruptcy under which you file.
- If you file a Chapter 7 bankruptcy, you normally receive a discharge a few months after the petition is filed. During the Chapter 7 bankruptcy process, you are subject to the seizure and sale of non-exempt assets. Money you have in your bank accounts or savings accounts, as well as proceeds generated by a sale of your personal property, will be distributed by your bankruptcy trustee to the creditors to whom you owe money. Once the money is distributed, then any balance that remains on eligible debt is discharged by the bankruptcy court and you are no longer obligated to repay it at that point in time.
- In a Chapter 13 bankruptcy, the discharge typically occurs when you have successfully finished the payments you agree to make under your plan. Unlike you would under Chapter 7, you won't have to sell your possessions. You will, however, have to create a plan, which your creditors agree to, wherein you repay them some of what you owe them. This repayment plan can last anywhere from a three to five year period. The amount you will be required to pay as part of this plan will be based on the income you have coming in and on the debt that you owe. Provided you successfully complete the approved repayment plan, any balance on the debts you owe that remains at the end will be discharged or forgiven.
It is important to note that while both Chapter 7 and Chapter 13 result in the discharge of debt, they do not result in the discharge of all debt. Certain debts like student loan debt, taxes, attorney fees in child custody and support cases, and unpaid alimony or child support will not generally be dischargeable in any bankruptcy proceedings.
You should always check with a lawyer before filing bankruptcy to determine if the filing will actually help you to deal with the debt you owe. Your lawyer can also assist you with the legal technicalities associated with filing for bankruptcy.