What Is a Bankruptcy Discharge?

Discovering what debts the court can and cannot wipe out when you file for bankruptcy may surprise you. Read on to find out how this would affect you.

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by

Ronna L. DeLoe, Esq.

Ronna L. DeLoe is a freelance writer and a published author who has written hundreds of legal articles. She does family law appeals in New York and has spent many years as a matrimonial and family law litigator. She majored in History and in English with a specialization in creative writing at Binghamton University. She graduated from Syracuse Law School and was a member of Syracuse Law Review.

Which debts are not discharged?

Declaring bankruptcy doesn't wipe out all debts. Certain obligations cannot be discharged, including:

Child support
Alimony
Mortgages, co-op, condo, and homeowners' association fees
Certain tax obligations
Criminal fines and penalties
Debts incurred by fraud
Debts you owe because of a DUI/DWI injury or death
Debts arising from your own wrongdoing
Student loans
Car loans
Debts secured by liens
Debts that haven't been discharged from your prior bankruptcy case
Court costs
Debts you haven't listed in your bankruptcy case

Which debts are discharged?

The court will allow you to discharge many debts in your bankruptcy case. Some of these debts include:

Credit card and consumer debt
Medical bills
Personal loans to friends or family members
Business debts
Past utility bills
Attorneys' fees
Judgments in lawsuits
Money due according to contract
Past due rent
Civil court judgments
Certain tax penalties
Some debts you've incurred from car accidents
Unsecured debts

Bankruptcy discharge vs. dismissal

A discharge in bankruptcy in a Chapter 13 case happens when you've finished repaying what you agreed to pay, according to the bankruptcy plan you arranged with the court. A Chapter 13 case requires monthly payments for from three to five years. Discharge in Chapter 13 cases happens after the three to five years is up and all of the agreed-upon debt has been repaid.

In a Chapter 7 case, the trustee sells your assets to satisfy your debt. A bankruptcy discharge in a Chapter 7 case takes place about four months after you file the petition. At the end of your Chapter 7 bankruptcy case, the court discharges your debt. You will no longer owe money to the creditor.

A bankruptcy dismissal is not what you want in your case, because you'll continue to owe the debt. The court can dismiss your Chapter 13 case if you can't make your payments, or the court can dismiss your Chapter 7 case if you don't have enough assets to sell to pay off your debt. The court can dismiss both Chapter 13 and Chapter 7 bankruptcy cases for several reasons, such as your failure to take the required credit counseling course, if you have too much income to declare bankruptcy, or if the court believes you've committed fraud by charging credit cards without the intent to repay them.

Can your bankruptcy discharge be denied?

Yes, in certain instances. If the court dismisses your case, you will continue to owe your creditors. Likewise, if a creditor is a secured creditor—where the creditor has a lien on your car or your house—you will still owe the secured creditor. A court also can deny your discharge for the following reasons:

Failure to abide by your court order
Hiding financial information that is subsequently discovered
Defrauding your creditors by transferring assets
Failure to take the required financial management and credit counseling courses
Committing perjury on your bankruptcy petition or in your case
Having insufficient assets to repay your debt or part of your debt in a Chapter 7 case

Bankruptcy discharge of tax debts

The bankruptcy court will not discharge most taxes, no matter what type of bankruptcy case you file. If the government filed a lien on your property before you filed bankruptcy, you still have to pay the taxes to remove it.

You can discharge tax debts under certain conditions. Discharging tax debts can only happen when:

1. The tax is income tax.

2. The tax was due at least three years before you filed your bankruptcy case.

3. You filed your tax return on time.

4. You didn't avoid paying your taxes.

5. You didn't commit fraud in your tax return.

What happens to a discharged debt in bankruptcy?

Once the court discharges debts in bankruptcy, it sends a copy of the bankruptcy order to your creditors. A creditor, collection agency, or attorney cannot collect the debt. The creditor or collection agency can't sue you for the debt. Also, the IRS cannot tax you for the discharged debt. The discharged debt, however, will appear on your credit report.

When creditors still call after a bankruptcy discharge

If creditors are still calling you after the court has discharged your debts, you can sue them for contempt. If the creditor claims he doesn't know about your bankruptcy, advise him and let him know you have an attorney. He probably knows because he received a copy of the court order advising that you can sue him if he continues to call.

While a collector can't contact you ever again about the debt, that doesn't mean he can't try to repossess the item, such as a car or anything else the creditor has secured by a lien. If you have such property, you should speak with your bankruptcy attorney to prevent repossession.