Discharging Debts: Overview

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What debt with a bankruptcy discharge?. Getty Images

In this series of articles, Discharging Debts, we’re tackling what many consumers find the most difficult area of bankruptcy to get their minds around. That is, which debts will the bankruptcy take care of and which debts will survive after the bankruptcy case is over. In a word, we’re talking about the bankruptcy discharge.

Goals of a Bankruptcy Case

Different people have different goals in mind when they file a consumer bankruptcy case, whether it be a relatively quick straight Chapter 7, a longer-term Chapter 13 case with a payment plan, or even a personal Chapter 11 reorganization.

These goals usually fall into one of two broad categories that we will call the front end goals and the back end goals.

     The Automatic Stay - keeping the creditors at bay

The front end goals all center around a device in the bankruptcy laws designed to give the borrower breathing space and to negate the rush-to-the-courthouse mentality of creditors. It’s called the automatic stay. The stay is essentially a court order that goes into effect when the case is filed that prohibits creditors from taking certain actions to collect their debts. So, on the front end, for many people, their goal is to enjoy the relief of not having to deal with haranguing telephone calls from collectors, letters containing ominous threats or even lawsuits. For others, it’s a way to prevent foreclosure of a house or repossession of a car.

    The Discharge - managing debt for the long haul

On the back end, the goal is a little different.

It is true that some people file a bankruptcy case to buy time so that they can get their financial houses in order, but for most people, their primary aim is to eliminate as much debt as they can so that they can get a fresh start.  What they’re looking for is a discharge of debts.

Wow, that sounds easy, doesn’t it?

Just file a case and all your debts go away.

Well, the fact is, it’s not that easy. Not all debts are discharged. Some types of debt cannot be discharged. Some can be discharged under some circumstances but not others. It could happen that a borrower goes to the trouble of filing a bankruptcy case only to learn that none of his debts will be discharged in the end.

The discharge is actually a court order that comes near the end of the case.

It states simply:  

It 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).

One thing that it does not have, that a lot of people would like to see, is an actual listing of the debts that were discharged in the case. Instead, the reverse side of the official form has a sheet of explanations as to which types of debt are discharged. Otherwise, to learn which specific debts are discharged in a particular case, one would have to refer to the debtor’s schedules - the papers filed by the debtor at the beginning of the case - and any proceedings during the case that might have affected the discharge of particular debts.

Warning for Creditors: Discharge is a complicated area of the law.

 Because there is no comprehensive listing in a case that will show which particular debt is discharged, creditors without significant bankruptcy experience should consult a qualified bankruptcy attorney who can help determine if any particular debt is discharged. If you act on your own during or after a bankruptcy case is completed, you are running the risk of committing major violations of the bankruptcy laws that can lead to major sanctions.

In this series we’ll be discussing what debts gets discharged and which debts are not dischargeable, how debtors can lose their right to a discharge, what creditors can do, and other topics. Feel free to click around to learn more about how debts like yours are treated in typical bankruptcy cases.

For more information:

To learn more about the debts that can and cannot be discharged in a bankruptcy case, be sure to visit these pages:

Discharge Overview

Discharge vs dischargeability

Challenging the general discharge and discharge of particular debts

Dischargeability of particular debts

Discharging car loans, home loans and other secured debt

Reaffirmations and other exceptions to discharge

Litigating discharge challenges