The definition, according to the Webster Dictionary, is “to end the service of (someone) in a formal or official way.” According to the Black’s Law Dictionary, a discharge is “any method by which a legal duty is extinguished; esp., the payment of a debt or satisfaction of some other obligation.”
In Bankruptcy, a discharge is commonly referred to as the final order from the Court at the conclusion of the case. This is an individual’s sign that the process has been completed successfully. I tell clients to keep the notice of discharge as proof that the debts are satisfied in case a creditor attempts to collect after the fact. A discharge is the goal when filing bankruptcy. Most debts are dischargeable. However, there are exceptions. The Bankruptcy Code lists 19 categories of non-dischargeable debts. It is important to know which debts may fall into the non-dischargeable category.
In short, a discharge in bankruptcy is the formal court order that wipes out your obligation to pay a debt. That means you do not need to repay a debt that has been discharged. A bankruptcy discharge also means that no one can attempt to collect a discharged debt from you, including by contacting you, sending you letters, or suing you.
Limitations of the Bankruptcy Discharge
In addition to your promise to pay, some types of debts (like a car loan or mortgage) are also secured by collateral to ensure payment. With secured debts, not only are you personally liable, but the creditor takes an interest (also known as a lien) in property that you own as collateral in case you don’t pay back the debt. This is why the bank can repossess your car if you don’t make the payment or foreclose on your house if you don’t pay your mortgage.
A bankruptcy discharge only removes your personal liability on a debt. It does not remove a secured lender’s lien in your property.
The following debts are always considered non-dischargeable:
- Tax debts for certain years and other special kinds of tax.
- Child support or alimony
- Student loans (unless you can establish an undue hardship)
- Court fines and penalties
- Debts to government agencies for fines and penalties
- Debts intentionally not listed in the bankruptcy schedules
Additional debts that creditor’s can challenge you on under certain circumstances.
The following debts may be contested and deemed non-dischargeable:
- Debts obtained by fraud or false pretenses
- Debts obtained as a result of willful and malicious injury to another
- Debts obtained within 90 days of filing for bankruptcy if used for purchases of luxury goods over $600
- Cash advances aggregating more than $825 that are under an open end credit obtained within 70 days of filing for bankruptcy
Income tax debts, for example, must satisfy several criteria to be dischargeable. In short, if the tax debt is from a recent tax year or if a return has not been filed, the debt cannot be discharged.
Some debts may be dischargeable only if you file under a specific chapter of bankruptcy. For example, domestic support obligations (like child support) are never dischargeable; however, other debts from a divorce decree or property settlement that are not related to the support of a child or ex-spouse may be dischargeable in a Chapter 13 bankruptcy, but not a Chapter 7. This is a complex area of bankruptcy law, so you should consult with an experienced bankruptcy attorney if you owe debts relating to a divorce.
How Do I Get a Discharge of My Debts?
Obtaining a bankruptcy discharge of debts depends on the chapter of bankruptcy that you file.
In most Chapter 7 bankruptcies, you typically receive a discharge of your debts automatically, assuming there are no objections and that you attend your Meeting of Creditors (a court hearing about 30 days after filing). You also must take the Debtor Education course before receiving a discharge. The total amount of time from the date of filing your bankruptcy to the date of discharge is typically about 90–100 days for most Chapter 7 bankruptcies.
In a Chapter 13 bankruptcy, you receive a discharge after completing your repayment plan. Most Chapter 13 repayment plans do not propose to pay back all your debts in full, so the remaining unpaid amounts are discharged upon completion of the plan. Like a Chapter 7, you must attend a Meeting of Creditors and complete the Debtor Education course. In a Chapter 13, you must also certify that you are current on all domestic support obligations (or that you have never owed any).
Although you do not receive a discharge of your debts until completion of your repayment plan in a Chapter 13, you do have the protection of the Automatic Stay in the meantime. The Automatic Stay is the legal protection that prevents your creditors from collecting from you while your bankruptcy case is active.