Discharging Debts: General Discharge vs. Dischargeability
When we talk about a bankruptcy "discharge", we need to ensure that we’re all on the same page. That’s because we could be talking about several related, but different issues that involve the general discharge that debtors hope to get and whether any individual debt is dischargeable in the case. The trustee or a creditor could challenge the discharge of any particular debt, or that same party could challenge the general discharge.
The General Discharge
Generally, when bankruptcy lawyers use the term “discharge”, we’re discussing the discharge order that court issues near the end of Chapter 7 or a Chapter 13 case. Often we will call that order the general discharge. The general discharge order signals to the world that the debtor (the person who filed the bankruptcy case) did what he or she was required to do under the bankruptcy laws and in turn is relieved of the obligation to pay any more on the debts that are dischargeable.
The U.S. Court's form states simply:
It is appearing that the debtor is entitled to a discharge, IT IS ORDERED: The debtor is granted a discharge under section 727 of title 11, United States Code, (the Bankruptcy Code).
In discussing the general discharge. It is also important to understand that discharge is a privilege, not a right. Before a debtor can get a discharge, he has to do a number of things to show that he is entitled to the discharge.
For instance, the debtor has to file a complete and truthful set of schedules that cover all aspects of his finances. He has to attend a Meeting of Creditors, and he has to have not defrauded his creditors before he filed bankruptcy.
Dischargeability of Particular Debts
Not all debts are dischargeable, however. Even though a debtor receives a general discharge, it could be that some number of her debts were excepted from discharge. In other words, they are not dischargeable in the case.
Unfortunately, the general discharge order does not include a list of the debts that are actually discharged. This can be frustrating for both the debtor and the creditors. Instead, the order itself includes some explanations on the reverse side (or on an additional sheet included in the envelope) that tell us what a discharge is and provides examples of the types of debt that are not discharged. Even then, the instructions hedge a lot, with descriptions like “Debts for most taxes” and “Some debts which were not property listed by the debtor.”
The general rule in a bankruptcy case is that a debt is discharged unless one of four things is true:
- The Bankruptcy Code specifically says that the type of debt is not discharged.
- A creditor files a lawsuit, called an adversary proceeding, in the case to challenge the dischargeability of a particular debt, which results in a decision by the bankruptcy judge that the debt is not discharged.
- The debtor reaffirms the debt.
- The debtor is denied a general discharge.
This all begs the question of which debts were actually discharged in a given case. That depends on the type of debt, and in some cases, it depends on whether the creditor or the debtor took action during the case to ask the bankruptcy judge to declare the debt non-dischargeable. This is what we often refer to as the dischargeability of the debt.
Therefore, to determine if any particular debt was discharged, it will be necessary to know whether something happened in the case that would change a debt that would be discharged into one that isn’t.
Finding Out Whether a Debt Was Discharged
If you have a question about whether a debt is discharged, how do you find the answer? The best way to determine it is to ask a lawyer who has knowledge of the case. That could be the lawyer who represented the debtor or someone who has access to the case file. Case files are public records and are generally available online for a fee through the federal court’s PACER system.
If you’re a creditor, and you have questions about whether the debt was discharged, you would be wise to seek legal advice before you take action to collect the debt. If you attempt to collect a discharged debt, it could be an expensive lesson for you because you could be held in contempt by the court and made to pay damages to the debtor.