A bankruptcy discharge is a pivotal concept in bankruptcy law, essentially representing a court order that releases a debtor from the legal obligation to pay certain debts. Put simply, when a debt is discharged in bankruptcy, you are no longer legally liable for it. This discharge acts as a permanent injunction, legally preventing creditors from taking any action to collect discharged debts. This prohibition extends to all forms of collection efforts, from initiating lawsuits to making phone calls, sending letters, or engaging in personal contact to demand payment.
It’s crucial to understand that while a discharge eliminates personal liability for debts, it doesn’t automatically erase valid liens. If a debt is secured by a lien on specific property (meaning the creditor has a legal claim against that property to ensure debt repayment) and this lien hasn’t been specifically removed or “avoided” during the bankruptcy proceedings, the lien remains in place even after discharge. This means a secured creditor retains the right to repossess or foreclose on the property to recover the debt, even if the debtor is no longer personally obligated to pay.
When Will I Receive a Bankruptcy Discharge?
The timing of a bankruptcy discharge is not uniform and depends significantly on the specific chapter of bankruptcy under which you file your case.
In a Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, the discharge process is generally the quickest. The bankruptcy court typically grants a discharge shortly after the deadline passes for creditors to object to the discharge or to file motions to dismiss the case due to substantial abuse. This objection period is usually 60 days following the first scheduled meeting of creditors (also known as the 341 meeting). In practice, Chapter 7 discharge orders are commonly issued approximately four months after the initial bankruptcy petition is filed with the court clerk.
For individual Chapter 11 bankruptcies, as well as Chapter 12 (designed for family farmers or fishermen) and Chapter 13 (geared towards individuals with regular income), the discharge timeline is different. In these chapters, the court usually grants the discharge as soon as reasonably possible after the debtor successfully completes all required payments under their confirmed bankruptcy repayment plan. Given that Chapter 12 and Chapter 13 repayment plans can span three to five years, the discharge in these cases typically occurs around four years after the bankruptcy filing date.
It’s also important to note a condition for individual debtors in both Chapter 7 and Chapter 13 cases. The court may withhold or deny a discharge if the debtor fails to complete an approved “instructional course concerning personal financial management.” This course is designed to educate debtors on responsible financial practices. However, the Bankruptcy Code does provide limited exceptions to this requirement if the U.S. Trustee or Bankruptcy Administrator determines that adequate educational programs are not available, or if the debtor has a disability, is incapacitated, or is on active military duty in a combat zone.
How is Bankruptcy Discharge Granted?
In most bankruptcy cases, unless there are formal legal challenges or objections to the discharge, the debtor will receive a discharge automatically. The Federal Rules of Bankruptcy Procedure outline the process for notification. The clerk of the bankruptcy court is responsible for sending a copy of the discharge order via mail to all listed creditors, the U.S. Trustee, the appointed bankruptcy trustee overseeing the case, and the trustee’s attorney (if applicable). The debtor and their attorney also receive copies of the discharge order.
This official notice is simply a copy of the final discharge order. It does not provide a detailed list of specific debts that might be deemed non-dischargeable (debts the court has determined are not covered by the discharge). Instead, the notice serves as a general notification to creditors, informing them that the debts owed to them have been discharged and that they are legally prohibited from pursuing any further collection activities. The notice also includes a warning that creditors who continue collection efforts after discharge could face penalties for contempt of court.
It’s worth noting that if the court clerk inadvertently fails to send the discharge order promptly to the debtor or a creditor, this clerical error does not invalidate the discharge order itself. The discharge remains legally effective even if there’s a delay in official notification.
Are All Debts Discharged in Bankruptcy?
No, not all debts are automatically discharged in bankruptcy. The extent of debt discharge varies depending on the specific bankruptcy chapter filed. Section 523(a) of the U.S. Bankruptcy Code explicitly lists numerous categories of debts that are excepted from discharge in bankruptcies filed by individual debtors under Chapters 7, 11, and 12. These debts remain the debtor’s responsibility to repay even after bankruptcy.
Congress has determined that certain types of debts are non-dischargeable for various public policy reasons. These reasons often relate to the nature of the debt itself or because the debt arose from improper or wrongful behavior on the part of the debtor, such as debts resulting from drunk driving.
While there are 19 categories of non-dischargeable debts under Chapters 7, 11, and 12, Chapter 13 bankruptcies have a slightly narrower list of exceptions.
Generally, the exceptions to discharge are automatically applied if a debt falls within the descriptions in section 523(a). Some of the most common examples of non-dischargeable debts include:
- Certain tax obligations.
- Debts not properly listed by the debtor in their bankruptcy schedules filed with the court.
- Domestic support obligations, such as alimony, spousal support, and child support.
- Debts arising from willful and malicious injury to another person or their property.
- Debts owed to governmental units for fines and penalties.
- Most government-funded or guaranteed educational loans and student loan overpayments.
- Debts for personal injury or death caused by the debtor’s operation of a motor vehicle while intoxicated (DUI/DWI debts).
- Debts owed to certain tax-advantaged retirement plans.
- Debts for certain condominium or cooperative housing association fees.
It’s important to understand that certain types of debts related to fraud or malicious actions, specifically those described in sections 523(a)(2), (4), and (6) (debts stemming from fraud, embezzlement, larceny, or willful and malicious injury), are not automatically excluded from discharge. For these types of debts, creditors must take proactive steps. They must formally request the bankruptcy court to determine that these specific debts should be declared non-dischargeable. If a creditor fails to file such a request with the court, and the court does not grant such a request, then debts falling under sections 523(a)(2), (4), and (6) will be discharged along with other eligible debts.
Interestingly, Chapter 13 bankruptcy offers a slightly broader discharge compared to Chapter 7. Debts that can be discharged in a Chapter 13 bankruptcy, but not in Chapter 7, include:
- Debts for willful and malicious injury to property (as opposed to person or property in Chapter 7).
- Debts incurred to pay non-dischargeable tax obligations.
- Debts arising from property settlements in divorce or separation proceedings.
While a Chapter 13 discharge usually occurs only after the debtor completes all payments required by their court-approved repayment plan, there are limited circumstances under which a debtor can seek a “hardship discharge.” This hardship discharge may be granted even if the debtor hasn’t completed all plan payments. However, a hardship discharge is only available if the failure to complete payments is due to circumstances beyond the debtor’s control. The scope of debts discharged under a Chapter 13 hardship discharge is similar to the scope of discharge in a Chapter 7 case in terms of the types of debts that remain non-dischargeable. A similar concept of hardship discharge also exists in Chapter 12 bankruptcy if the failure to complete plan payments is due to “circumstances for which the debtor should not justly be held accountable.”
Can Creditors Object to Bankruptcy Discharge?
In Chapter 7 bankruptcy cases, the debtor’s right to a discharge is not absolute. Creditors, the bankruptcy trustee assigned to the case, or the U.S. Trustee’s office all have the right to object to a debtor’s discharge. Shortly after a bankruptcy case is filed, creditors receive an official notice containing important information, including the deadline for filing objections to discharge.
To formally object to a debtor’s discharge in a Chapter 7 case, a creditor must initiate an “adversary proceeding” by filing a complaint with the bankruptcy court before the specified deadline. This adversary proceeding is essentially a lawsuit within the bankruptcy case.
The bankruptcy court has grounds to deny a Chapter 7 discharge for various reasons outlined in section 727(a) of the Bankruptcy Code. These reasons can include:
- Failure to provide requested tax documents to the trustee.
- Failure to complete the mandatory personal financial management course.
- Transferring, concealing, or destroying property with the intent to hinder, delay, or defraud creditors.
- Destruction, falsification, or concealment of financial books or records.
- Committing perjury or other fraudulent acts during the bankruptcy process.
- Failure to adequately explain a loss of assets.
- Violation of a court order within the bankruptcy case.
- Receiving a prior bankruptcy discharge in a Chapter 7 or Chapter 11 case within eight years before filing the current Chapter 7 case.
- Receiving a prior bankruptcy discharge in a Chapter 12 or Chapter 13 case within six years before filing the current Chapter 7 case, unless certain repayment conditions were met in the prior case.
If an objection to discharge proceeds to trial, the party objecting (usually a creditor or the trustee) bears the burden of proof. They must present sufficient evidence to convince the court that the debtor’s discharge should be denied based on one or more of the legal grounds for denial.
In contrast to Chapter 7, in Chapter 12 and Chapter 13 cases, debtors are typically entitled to a discharge upon successfully completing all payments required under their confirmed repayment plan. Similar to Chapter 7, a Chapter 13 discharge can be denied if the debtor fails to complete the personal financial management course. Furthermore, a debtor is ineligible for a Chapter 13 discharge if they received a prior discharge in a Chapter 7, 11, or 12 case within four years before filing the current Chapter 13 case, or in a Chapter 13 case filed within two years prior.
A key difference in Chapter 12 and 13 is that creditors do not have the legal standing to object to the discharge itself. Creditors in these chapters can object to the confirmation of the debtor’s repayment plan if they believe it doesn’t meet legal requirements. However, once the plan is confirmed and the debtor completes the plan payments, creditors cannot prevent the discharge from being granted.
Repeat Bankruptcy Filings and Discharge
The Bankruptcy Code also addresses the issue of debtors filing multiple bankruptcy cases and seeking repeated discharges. There are specific time limitations on how frequently a debtor can receive a Chapter 7 discharge.
A bankruptcy court will deny a discharge in a subsequent Chapter 7 case if the debtor received a discharge in a prior Chapter 7 or Chapter 11 case that was filed within eight years before the filing of the new Chapter 7 petition.
Additionally, a Chapter 7 discharge will be denied if the debtor previously received a discharge in a Chapter 12 or Chapter 13 case filed within six years before the date of filing the new Chapter 7 case, unless one of two conditions is met in the prior Chapter 12 or 13 case:
- The debtor paid all “allowed unsecured” claims in the earlier case in full.
- The debtor paid at least 70 percent of the allowed unsecured claims under the plan in the earlier case, and the plan was proposed in good faith and represented the debtor’s best effort to pay creditors.
There are also limitations on obtaining Chapter 13 discharges in cases filed close in time to prior bankruptcies. A debtor is ineligible for a discharge in a Chapter 13 case if they received a prior discharge in a Chapter 7, 11, or 12 case filed within four years before the current Chapter 13 case, or in a Chapter 13 case filed within two years before the current case.
Revocation of Discharge
Under certain circumstances, a bankruptcy discharge can be revoked or taken back by the court. In a Chapter 7 case, a trustee, creditor, or the U.S. Trustee can request the court to revoke a debtor’s discharge based on specific allegations. These grounds for revocation include:
- The debtor obtained the discharge through fraud.
- The debtor failed to disclose that they acquired or became entitled to acquire property that would be considered part of the bankruptcy estate (assets available to pay creditors).
- The debtor committed certain improper acts as described in section 727(a)(6) of the Bankruptcy Code (e.g., refusing to obey lawful court orders or answer questions).
- The debtor failed to explain discovered misstatements in a bankruptcy audit or failed to provide requested documents or information during an audit.
Generally, a request to revoke a discharge must be filed within one year of the discharge being granted, or in some specific situations related to fraud, before the bankruptcy case is officially closed. The bankruptcy court will then hold a hearing to determine if the allegations are valid and, if so, whether the discharge should be revoked.
In Chapter 11, 12, and 13 cases, if the confirmation of a repayment plan or the discharge itself was obtained through fraud, the court has the authority to revoke the order confirming the plan or the discharge.
Voluntary Repayment of Discharged Debts
Even after receiving a bankruptcy discharge and the case is closed, a debtor retains the option to voluntarily repay any debt that was discharged. While a discharged debt is no longer legally enforceable, a debtor may choose to repay it for personal reasons. Common motivations for voluntary repayment include wanting to honor a debt owed to a family member or to fulfill an obligation to someone for whom the debtor’s reputation is important, such as a family doctor or close friend.
Actions Against Creditors Attempting to Collect Discharged Debts
If a creditor attempts to collect a debt that has been discharged in bankruptcy after the case has concluded, the debtor has legal recourse. The debtor can file a motion with the bankruptcy court, informing the court of the creditor’s collection actions and requesting that the case be reopened to address the issue. Bankruptcy courts frequently reopen closed cases to ensure that the discharge order is upheld and not violated.
The bankruptcy discharge operates as a permanent statutory injunction, legally prohibiting creditors from taking any action to collect a discharged debt. This prohibition includes filing lawsuits or any other collection efforts. A creditor who violates this discharge injunction can be sanctioned by the court for contempt of court. The typical sanction for violating a discharge injunction is civil contempt, which often involves financial penalties or fines.
Bankruptcy and Employment Discrimination
Bankruptcy law includes explicit protections against discriminatory treatment of debtors by both governmental entities and private employers. It is illegal for a governmental unit or private employer to discriminate against a person solely because they have filed bankruptcy, were insolvent before or during the bankruptcy case, or have not paid a debt that was discharged in bankruptcy.
The law specifically prohibits the following forms of governmental discrimination:
- Terminating an employee’s job.
- Discriminating against a person in hiring decisions.
- Denying, revoking, suspending, or refusing to renew a license, franchise, or similar privilege.
Similarly, a private employer is prohibited from discriminating against an employee or potential employee with respect to employment if the discrimination is solely based on the individual’s bankruptcy filing.
Obtaining a Copy of the Discharge Order
If a debtor misplaces or loses their original bankruptcy discharge order and needs a new copy, they can obtain one by contacting the clerk’s office of the bankruptcy court that issued the order. The clerk’s office will typically charge a fee for searching court records to locate the case and the discharge order. There will also be additional fees for making and certifying copies of the document. If the bankruptcy case has been closed for a significant period and archived, there may be a retrieval fee, and obtaining the copy may take longer due to the need to retrieve the archived records.
In many bankruptcy courts, discharge orders and other case documents may be available electronically through the Public Access to Court Electronic Records (PACER) system. PACER provides online access to selected case information via personal computers located in many court clerk’s offices, and debtors can also access PACER remotely. Users need to set up a PACER account and pay a per-page fee to download and copy documents filed electronically.
