A bankruptcy discharge is an order from the Bankruptcy Court that is granted to the filer in a successful Chapter 7 bankruptcy case. Discharge orders are also entered in Chapter 13 cases, but only if the filer is eligible for a discharge, which most often includes completing the payment plan. The debt that is discharged depends in part on the type of bankruptcy you file.
The discharge order says that you are no longer responsible for paying certain debts. Once this order has been entered, creditors and debt collectors are not allowed to try to make you pay the discharged debts. A creditor or debt collector who violates the court order is breaking the law and may be punished by the Bankruptcy Court. In serious cases, the collector may even have to pay damages to the bankruptcy filer.
But, not all debt can be discharged. Generally, unsecured debts can be discharged and secured debts can’t, but there are exceptions. Bankruptcy law makes certain types of unsecured debt nondischargeable. That means you will still have to pay them after a bankruptcy discharge. And, some secured debt can be discharged if you give back the property or in limited other circumstances.
What debts are discharged?
Most unsecured debts are dischargeable in bankruptcy. Some examples of the type of debts that are often discharged include:
Credit card debt
Other unsecured loans
Past-due utility bills
Not just anyone can walk into the Bankruptcy Court, file their bankruptcy paperwork and get a court order wiping out these debts, though. The bankruptcy filer must qualify through the Chapter 7 Means Test. And, only certain assets are protected in a Chapter 7 case. These protected assets are called “exempt assets.” Exemptions are different in every state. Most include necessities such as a certain amount of value in a home or car, household goods, and work tools. In many states, a “wild card” exemption lets the bankruptcy filer protect property not already on the list of exempt assets.
But, non-exempt assets can be sold by the bankruptcy Trustee to pay creditors. Some examples include boats, summer houses, luxury cars, and expensive jewelry. Most people who are thinking about filing Chapter 7 bankruptcy don’t have this type of property. So, most don’t lose any property in a Chapter 7 case. But, it is important to check the bankruptcy exemptions in your state before filing. People who have a lot of non-exempt property and want to keep it often choose Chapter 13 bankruptcy. Since folks in a Chapter 13 bankruptcy do have some regular income, and considering how much more complicated the Chapter 13 process is, it's strongly recommended that you speak to a bankruptcy attorney or law firm about it.
What type of debts cannot be discharged in Chapter 7?
Debts that can’t be discharged fall into two categories: nondischargeable unsecured debts and secured debts. The unsecured debts that can’t be discharged are listed in the U.S. Bankruptcy Code. Some of the most common types include:
Domestic support obligations: You’ve probably heard that child support isn’t dischargeable in bankruptcy. Other types of domestic support, such as alimony or spousal maintenance are also nondischargeable.
Certain types of tax debt: Some tax debt is dischargeable in bankruptcy, but much is not. Specifically, recent tax debt is usually not dischargeable. Tax debt may also be nondischargeable for other reasons, like if fraud was involved or if you didn’t file your taxes.
Federal student loan debt: Federal student loan debt and certain other types of educational debt are nondischargeable by law. With so many people overwhelmed by student loan debt, this presents a serious limitation. The Bankruptcy Court can grant a discharge of student loan debt if the judge determines that requiring payment of the debt would create an undue hardship. But, the test for undue hardship is strict, and hardship discharges are rare.
Debt may also be nondischargeable when it results from certain types of dishonesty or malice. For instance, some types of debt can’t be discharged if the accounts were opened fraudulently.
Debts for causing an intentional personal injury to another person or their property are generally not dischargeable. And, debts relating to having injured or killed someone while driving under the influence can’t be discharged.
Secured debts are debts with collateral. For example, when you get a car loan, the lender takes a security interest in the car. That means the lender can take the car if you don’t pay your debt. So, you can’t keep the property but discharge the debt. Your personal liability on the secured debt can be discharged if you give back the property.
What type of debts cannot be discharged in Chapter 13?
Discharge works differently in a Chapter 13 case than in a Chapter 7 case. Chapter 13 bankruptcy involves a three-to-five-year repayment plan. The Chapter 7 discharge wipes out dischargeable debt in full. But, Chapter 13 filers who can afford to may have to pay some of their unsecured, nonpriority debt as part of the repayment plan. When the plan is successfully completed, remaining dischargeable debt can be discharged.
Most of the debts that are nondischargeable in Chapter 7 bankruptcy are also nondischargeable in Chapter 13. But, there are exceptions. Some examples of debt that is not dischargeable in a Chapter 7 case but may be in a Chapter 13 case are:
Debts incurred to pay nondischargeable tax debt
Some divorce-related debt (though still not alimony or child support)
Debt from intentional damage to property
Unfortunately, federal student loan debt remains a nondischargeable debt in a Chapter 13 case unless you qualify for a hardship discharge. Yet, Chapter 13 can sometimes be helpful to manage student loan debt, as it can reduce payments for the three or five years your repayment plan lasts. Be careful, though. Federal student loan debt doesn’t go away, and you’ll still be responsible for the unpaid balance (plus all interest that has accrued while your case was pending) when the Chapter 13 case ends.↑ Back to top
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How long before a bankruptcy is discharged?
Because Chapter 7 and Chapter 13 bankruptcy work very differently, the amount of time it takes to get a bankruptcy discharge depends on which type of bankruptcy you file. In a Chapter 7 case, the bankruptcy discharge is typically granted quickly. But, a Chapter 13 filer isn’t eligible for a discharge until the repayment plan is complete, three to five years after the case is first filed. You will be protected from creditors' collection actions from the date of filing, and any legal actions and other collection efforts have to stop from that date forward. The discharge order makes the protection permanent by eliminating your personal liability on the debt for good.
How long before the Court issues my Chapter 7 bankruptcy discharge?
If everything moves forward smoothly, you can usually expect to receive your bankruptcy discharge letter about two months after the Meeting of Creditors, also called the 341 meeting. The 341 meeting takes place about a month after you file bankruptcy. The timeline from filing your bankruptcy petition to getting your order of discharge can be less than five months. But, the exact timing depends on you and your bankruptcy case.
Your creditors have time to make objections--in some cases, up to 60 days after the 341 meeting. If a creditor objects or some other type of adversary proceeding is filed, your bankruptcy case will be delayed while those issues are resolved.
If the bankruptcy Trustee requests additional information at or after the 341 meeting, you’ll want to respond quickly. Your bankruptcy case won’t move forward until you’ve provided everything required of you. You must also complete your personal financial management course, also called “debtor education,” before you can receive your discharge. So, if you delay taking that credit counseling course, it can hold up your discharge.
Fortunately, creditor objections and objections by the U.S. Trustee in a Chapter 7 case are pretty unusual. If you do your part, you can usually expect your bankruptcy discharge within about six months of filing.
How long before the Court issues my Chapter 13 bankruptcy discharge?
In a Chapter 13 bankruptcy case, debts are only discharged after all plan payments have been made. That means that unless a crisis occurs and a hardship discharge is granted, you won’t receive your bankruptcy discharge for at least three years after filing for Chapter 13 bankruptcy.
Don’t worry, though. In a Chapter 13 case, the automatic stay that prevents creditors from trying to collect remains in effect while you make payments. Even though you won’t receive a discharge for at least three years--and maybe more than five--the automatic stay will continue to protect you during that time.
As in a Chapter 7 case, you must complete the required debtor education course to be eligible for discharge.↑ Back to top
What happens after discharge from bankruptcy?
When the discharge order is entered, you should receive a copy in the mail. You may need your discharge order later, so keep it in a safe place. If you do not receive your bankruptcy discharge or it is lost or destroyed, you can get a copy from the Bankruptcy Court clerk.
If a creditor or debt collector contacts you after discharge or sends you a bill, send them a copy of your discharge order. If they continue to try to collect from you after receiving your discharge order, they are disobeying a court order. If the problem continues, your bankruptcy case can be reopened so the Court can decide whether and how to punish the debt collector.
After discharge, take advantage of the opportunity to build a stronger financial foundation and begin credit repair. That’s what the fresh start is for! That means managing your finances carefully, as you learned in the debtor education course. It also means carefully monitoring your credit report.
Unfortunately, some creditors and debt collectors are careless about the information they send to credit reporting agencies. Others intentionally leave misinformation on your credit report to try to pressure you to pay discharged debt in violation of the discharge injunction. To make sure you get the full benefit of your bankruptcy discharge, you must keep an eye on your credit report and do something about it if it’s incorrect.
Creditors and debt collectors who intentionally misreport debt that was discharged in bankruptcy, or who refuse to fix mistakes, are violating the bankruptcy discharge order. That means they can be punished by the Bankruptcy Court, just like creditors who continue to bill you or try to sue you.
Does your credit score go up after Chapter 7 discharge?
Many Chapter 7 bankruptcy filers in the United States see a significant increase in their credit scores almost immediately after discharge. One study from the Federal Reserve of Philadelphia showed an average increase of more than 80 points. And, that was before any post-discharge credit repair efforts. Another study from a nationwide lending broker showed that nearly ⅔ of bankruptcy filers had credit scores of 640 or higher within two years of filing. Bankruptcy stays on your credit report for 7 or 10 years depending on the type of bankruptcy. But, for people who were struggling with debt before they filed, that is often outweighed by the debt relief they get from their bankruptcy filing.↑ Back to top