All About Bankruptcy Discharge

A bankruptcy discharge is the official notification from bankruptcy court that is the most important document a debtor can receive. The discharge signals the end of the case and provides a number of vital permanent protections for the debtor.

What is the Bankruptcy Discharge

It is the order from the bankruptcy court that ends the legal requirement that the debtor repay any of the debts that are discharged. The document is just as crucial for creditors, who can no longer take any type of legal action to collect a discharged debt, even something as simple as a letter or telephone call.

The discharge takes place at different times, depending on the bankruptcy chapter involved. In a Chapter 7 case, the discharge is effective 60 days after the Section 341 creditors meeting, unless there has been a complaint filed by a creditor or an issue raised by the trustee.

In Chapter 13 cases and those for individuals under Chapter 11, the timing of the discharge depends on the completion of the repayment or reorganization plan. The court will grant the discharge as soon as the debtor has complete all of his or her required payments. In all cases, the discharge is a copy of the final order of discharge that is filed in the case and mailed to the debtor and all pertinent parties. One aspect of a bankruptcy discharge is that the judge can always reopen the case if a creditor continues with collection actions on a debt that was discharged.

Barriers to Bankruptcy Discharge

Individual debtors are required to undergo approved credit counseling within 180 days of filing for bankruptcy. A certificate proving this hour to 90-minute course was taken must be included with the bankruptcy filing. In addition, proof that a debtor education was completed after the case was filed is required before a discharge is issued. Failure to meet either of those responsibilities could result in a bankruptcy case being dismissed.

A Bankruptcy Discharge is Not Automatic

In all cases, fraudulent information contained either in the bankruptcy filing or financial actions taken by the debtor to defraud a creditor or manipulate the bankruptcy process can lead to a dismissal by the bankruptcy judge.

In Chapter 11 or 13 cases, a bankruptcy discharge is closer to automatic as long as the repayment or reorganization plan is followed. However, an individual debtor still must follow the requirements for credit counseling and debtor education to receive a bankruptcy discharge.

In a Chapter 7 case, the court has significant latitude to deny a bankruptcy discharge. Section 727 of the bankruptcy code includes provisions that indicate when a discharge should not be allowed. This includes failure to complete the credit counseling and debtor education courses as well as any of a number of fraudulent acts, from hiding property, to lying in the bankruptcy filing about financial information.