What Is a Bankruptcy Discharge?

What Does a Bankruptcy Discharge Order Do?

If your bankruptcy case is successful, the judge will enter a discharge order. This is a court order that tells your creditors they are forever prohibited from asking you to pay your pre-bankruptcy debts ever again. It essentially wipes out your eligible debts.

How Long Does It Take To Get a Bankruptcy Discharge?

The most common type of personal bankruptcy is Chapter 7. Most Chapter 7 discharges happen within four to six months of filing.

Some individuals — especially those with homes they want to keep — choose to file Chapter 13 bankruptcy instead. Since Chapter 13 involves a repayment plan, your debts aren't discharged until the payment plan is completed. This takes three or five years, depending on your situation.

Regardless of what type of bankruptcy you file, once you have a discharge, the order protects you even after your bankruptcy case is closed. In other words, a discharged debt is a debt that the creditor can’t try to collect from you.

How Do Your Creditors Know About Your Bankruptcy Discharge?

When you file bankruptcy, you have to list all of your creditors on a form called a creditor matrix. The bankruptcy court uses the information from this to contact each of your creditors and inform them of your discharge order.

The court will send you a copy as well. Since this is what you’ve been working towards, it’s important to keep this document in a safe place in case you need it. You do not have to send the discharge to your creditors.

By now, your creditors should have stopped contacting you long ago and the only reason you would ever need to send them a copy of your discharge is if they didn’t get the copy from the court, for whatever reason.

What Should You Do After You Get a Bankruptcy Discharge?

First, celebrate! You've worked hard to file your bankruptcy and get this financial fresh start.

Next, it's a good idea to get a copy of your credit report about a month after your discharge is entered. Checking your report allows you to ensure that everyone is correctly reporting your discharge. If a pre-bankruptcy debt doesn't show up as discharged on your report, you should file a dispute with the credit reporting agency to correct this.

At this point, it's not practical or effective to contact your creditor about this. They'll likely have a big flag in their system that they are legally prohibited from trying to collect from you. Therefore, even if you call them, they might not speak to you about your account at all, even if all you are trying to do is verify that the debt has been discharged.

What Happens to Nondischargeable Debts After the Discharge Order?

Not all debt can be discharged in bankruptcy. But you have to list all of your creditors in your bankruptcy forms, regardless of whether the debt is dischargeable or not.

This means that even creditors who cannot be discharged (such as child support or some tax debts) will receive a copy of the discharge. For those creditors, the discharge tells them that the automatic stay has been terminated and they can resume collection activities from you.

If you have tax debts that are more than three years old, they may have been discharged. Since a lot of factors go into determining whether your tax debt was discharged, your best bet is to wait 30-60 days, then contact your local IRS office. By then, their system should have updated throughout and they should be able to tell you which of your tax debts, if any, have been discharged. If you had a tax lien filed against you for any of the discharged tax years, you should also ask them about releasing the lien at that time.

Let's Summarize...

Getting your debts discharged is the main goal of your bankruptcy case. Getting the discharge is an automatic process assuming you complete all the necessary steps of the process and the court will notify your creditors as soon as it has been entered.

It does not mean that your case has been closed and you continue to be obligated to assist the trustee in the administration of your case. If you don’t, the trustee can ask the court to revoke your discharge which would then allow all of your creditors to start coming after you again (making the entire bankruptcy case basically pointless). You should continue to monitor correspondence from your trustee and the court, and keep both updated if your mailing address changes to avoid any unnecessary hiccups.