The main focus of bankruptcy relief is discharge from your debts. Discharge means that your personal liability for a debt ends, and creditors can't make any further collection efforts.
However, not all debts are eligible for discharge, or are "dischargeable." You take control of your bankruptcy and financial fresh start when you know what the scope of discharge is and what it means in your case.
Shortly after you file for bankruptcy, you must file schedules listing your debts and creditors, a statement of your financial affairs, along with other documents. These filings document your financial circumstances, your eligibility for bankruptcy relief and whether you're claiming any property as exempt from creditors' claims.
Meeting of Creditors and Creditors' Claims
Once your case is filed, the court sends a notice to your creditors, informing them that you've filed for bankruptcy, with the details for a meeting of creditors. The bankruptcy trustee, who administers your case, runs this meeting. Meetings are typically brief, and the trustee and any creditors that show up can ask questions about your debts and finances.
The meeting notice also includes deadlines for creditors to file proofs of claim, and to object to your discharge and property exemptions you're claiming.
A permanent trustee, who will continue and complete administration of your case, can be named at the creditors' meeting as well. The main remaining duties of the trustee are to sell your property, which now makes up the bankruptcy estate, and oversee payments on creditors' claims.
After the deadline for objections to discharge passes, the court enters an order of discharge. The court won't enter the order if you haven't filed the certificate showing your completion of the required personal financial management course.
Dischargeable Debt Types
When you investigate your bankruptcy relief options, assess your debts and confirm that they are eligible for discharge. Filing for bankruptcy relief is a big decision, and it's important to know what it will do for you. It's also important to know what types of debt aren't dischargeable.
Many common types of debt are dischargeable. There are some differences depending on whether you file a Chapter 7 or Chapter 13 case.
Chapter 7 Dischargeable Debt Types
In a Chapter 7 case, the following types of debts are dischargeable:
- Business debts
- Judgments against you, including car accident claims
- Deficiencies existing after vehicle repossessions
- Personal loans
- Credit card account balances
- Negligence claims
- Liabilities under guaranty agreements
Chapter 13 and Discharge
Discharge works somewhat differently in Chapter 13. The relief is the same, and your responsibility for a debt ends upon discharge. In Chapter 13, you have a reorganization plan and pay a portion of your debts with disposable income. Generally, you keep your property in a Chapter 13 case, but plans can include selling some assets to pay debts.
A full compliance discharge is granted if you make all plan payments. The discharge applies to all debts provided for by your plan and is broad in scope.
The court can grant you a hardship discharge if you weren't able to make all plan payments due to no fault of your own, such as involuntary job loss, and modifying the plan won't work. The hardship discharge applies to unsecured debts included in your plan, such as credit card accounts.
Discharge also shows that you faced and dealt with your debt issues, and you are ready to move ahead with a clean financial slate.
Questions for Your Attorney
- If a creditor objects to discharge of a debt, how long does it take for the court to make a decision on the issue?
- What should I do if a creditor tries to collect on a debt after it's been discharged in bankruptcy, and do I have any remedies against the creditor?
- If I can't make my Chapter 13 plan payments, what will a hardship discharge mean in my case, and are there other options available to me?