The Bankruptcy Discharge Explained
One of the most important benefits of most bankruptcies is the bankruptcy discharge, which is typically issued after all of the requirements for bankruptcy have been met.
What is the bankruptcy discharge?
The bankruptcy discharge is a court order that eliminates your debts in a chapter 7 or chapter 13. In a chapter 11, the confirmation order acts as a discharge for all debts that arose pre-confirmation. The discharge order also serves as an injunction to prohibit creditors from collecting on debts that have been discharged.
What debts are not discharged?
A bankruptcy is a powerful tool to eliminate or restructure debt, but it does not resolve all debt. Certain kinds of debts are not dischargeable in chapter 7 bankruptcy, such as:
- Domestic obligations like child support, alimony, and other debts owed under a marriage settlement agreement
- Certain tax obligations
- Certain fines, penalties, and restitution resulting from criminal activity
- Debts incurred by fraud
- Debts owed because of a DUI charge,
- Debts arising from your own wrongdoing
- Retirement plan loans
- Student loans
- Debts that could not be discharged in a previous bankruptcy
In chapter 13 bankruptcy, some of these debts are dischargeable:
- Marital debts created in a divorce agreement (exclusive of spousal support or alimony)
- Court fees
- Certain tax-related debts
- Condo and homeowners’ association fees
- Debts for retirement loans, and
- Debts that could not be discharged in a previous bankruptcy.
What debts are discharged?
Many common kinds of debt are dischargeable in both chapter 7 and 13 bankruptcy, such as:
- Credit cards and consumer debts
- Medical bills
- Personal loans to friends or family members
- Business debts on which you have a personal guaranty
- Past utility bills
- Attorneys’ fees
- Past due rent
- Civil court judgments
- Certain tax obligations
What are the conditions to get a bankruptcy discharge?
There are many conditions that must be met before you can receive a discharge. In a chapter 7, you must have:
- Filed the official petition, schedules, and required forms;
- Provided the court with accurate documentation of your debts, assets, income, and statement of financial affairs;
- Sent the chapter 7 trustee all required documentation;
- Attended the 341 meeting of creditors;
- Completed and filed with the court proof of completion of a credit counseling and financial management courses.
In a chapter 13, in order to receive a discharge, you must also make all of your chapter 13 plan payments.
When do I get a bankruptcy discharge?
Assuming everything goes smoothly in your chapter 7 bankruptcy, in Maryland, a discharge is typically entered between 4-6 months after your case has been filed with the court. If your case is an asset case, it will take longer as the trustee sets a bar date for proofs of claim that must pass before the court can enter a discharge.
In a chapter 13 bankruptcy, the discharge order is entered after completion of your chapter 13 plan payments and after the trustee has completed all distributions according to the chapter 13 plan.
Are there other circumstances when I will not receive a discharge?
In addition to the kinds of debt discussed above on which you cannot receive a discharge, there are additional circumstances where you may not receive a discharge. If you have filed a chapter 7 bankruptcy and received a discharge within 8 years before filing a second chapter 7 bankruptcy, you will not receive a chapter 7 discharge in your second case. If you file a chapter 7 bankruptcy within 6 years of filing a chapter 13 bankruptcy and receiving a chapter 13 discharge, you will not receive a chapter 13 discharge. If you file a chapter 13 within 4 years of filing a chapter 7 and receiving a chapter 7 discharge, you will not receive a chapter 13 discharge. Finally, if you filed a chapter 13 bankruptcy and received a discharge and file a second chapter 13 bankruptcy within 2 years, you will not receive a discharge on your second chapter 13.
What’s the point of filing for bankruptcy if I won’t get a discharge?
There are additional benefits to filing a bankruptcy even if you may not receive a discharge. Importantly, the automatic stay may be in place to prevent collection activity. You may wish to file a chapter 13 immediately after filing a chapter 7 (sometimes called a “chapter 20” bankruptcy) to pay off debts that are not dischargeable in a chapter 7, such as tax debts, or to use a chapter 13 to bring a mortgage current after you have file a chapter 7 for unsecured debts. A chapter 20 bankruptcy can also be helpful if you wish to cramdown a secured loan or strip off a lien. You may wish to file a chapter 7 first to reduce your debt to qualify for the chapter 13 debt limits, and then file a chapter 13 to pay off tax debts, mortgage arrears or to cramdown a secured loan or strip off a secured lien.
Steiner Law Group is experienced with issues surrounding the bankruptcy discharge. If you have questions about filing for bankruptcy, please contact us.