Bankruptcy discharges occur in Chapter 7, 11, 12, and 13. Each chapter has its own terms and exceptions, but the basic principle is that debtors will no longer be required to pay back the amounts owed on certain debts. Once these debts are discharged, creditors are no longer able to contact or attempt to collect on those debts.
Discharged Debts
To be clear, not all forms of debt are discharged during a bankruptcy. The debts that are allowed to be discharged under the bankruptcy laws pertaining to each chapter vary. However, there are also debts that cannot be discharged. These debts are those that are accrued due to unlawful behavior, or because of the overall nature of them. For Chapters 7, 11, and 12, these include:
- Tax claims
- Child support
- Alimony or spousal support
- Governmental penalties or fines
- Debts originating from malicious or willful injury to a person or property
- Benefit overpayments
- Student loans
- Personal injury debts due to DUI
- Tax retirement plans
- Cooperative or condominium housing fees
There are other debts that may be ineligible for discharge depending on the chapter of bankruptcy filed. Additionally, any debts that are not reported at the time of the filing cannot be discharged either.
Requirements for Discharge
The requirements for being able to discharge debts vary with each chapter. Chapters 7 and 13 require both pre-bankruptcy credit counseling, and pre-discharge counseling. Pre-bankruptcy counseling is designed to assist debtors in determining whether they can control their debts without filing. This consultation is handled by nonprofit credit counseling agencies, who help you figure out if there is an option for repayment that will not add to the debts you already owe. This course must be completed within 180 days of the time you plan to file for debt relief.
The pre-discharge counseling occurs prior to the discharge, and must be completed within the 45-day period after the creditors’ meeting for Chapter 7, and before you make the last plan payment in Chapter 13. This course assists with budgeting and financial planning, which is vital to helping prevent the same issues in the future.
In Chapters 12 and 13, the debtor must complete all required payments under the filing before the remaining balances of the debts will be discharged. In all cases except Chapter 13, creditors may be allowed to object to the discharge in an effort to claim more of the debt that is owed.
It is also important to understand that discharges can be revoked if there is cause to believe that the debtor did not disclose all property and income, or if other fraudulent activity is suspected. In these cases, the courts will investigate the allegations, and if they are found to be correct, discharge will be revoked.
Bankruptcy is not easy to deal with, but for most, the goal is to reach the discharge by meeting all requirements. Failing to do so can result in dismissal, which causes the debtor to revert to owing all debts in full.
