In the 1934 Supreme Court case Local Loan Co. v. Hunt, the court wrote that bankruptcies exist to give “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” The very heart of bankruptcy is to give people second chances.
One of the core financial tools in a bankruptcy is the bankruptcy discharge. A bankruptcy discharge is a permanent court order releasing a debtor from needing to pay certain debts. After a discharge, collectors are legally barred from calling you, sending you mail, or taking any action to collect the debt. It is essentially wiped out—or at the very least, the debt no longer belongs to you.
Are All Debts Discharged in a Bankruptcy?
While an enormous amount of your debt qualifies for discharge (most likely), there are some vital debts that you’ll need to pay regardless of any bankruptcy.
Generally speaking, nondischargeable debts include:
- Child support
- Alimony
- Student loans
- Court-ordered fines
- Victim restitution
Chapter 7 bankruptcy, or the “liquidation” bankruptcy, allows filers to sell their assets to pay off as much of their debt as they can, then discharge the rest. Aside from the debts listed above, Chapter 7 allows filers to discharge the vast majority of consumer and unsecured debt.
With a Chapter 7 bankruptcy, you can discharge:
- Credit card debt (including overdue and late fees)
- Accounts in collections
- Medical debt
- Personal loans from individuals
- Past due utility bills
- Deficient balances after repossession
- Auto accident claims (except for DUI)
- Business debt
- Past due rent payments
- Non-fraud civil court judgments
- Attorney fees
- Unpaid taxes and tax penalties
- Social security overpayment
- Veterans assistance loans
In a Chapter 13 bankruptcy, or a “reorganization” bankruptcy, you can discharge even more types of debt. While the undischargeable debts listed here still apply, there are certain debts you can discharge under a debt repayment plan that you would not otherwise be able to get rid of.
Debts discharged in a Chapter 13 include all of the above, as well as:
- Debt from willful and malicious property damage
- Debt incurred to pay off nondischargeable tax obligations
- Debts that came from a property settlement in divorce or separation
Note that the debt arising out of a property settlement does not include alimony or child support—only debts assigned in divorce proceedings.
Can the Court Deny a Discharge?
If a debtor fails to complete the mandatory instructional course on financial management, the court could deny the debtor a discharge. Otherwise, unless a creditor has filed an objection to a discharge, the debtor usually receives a discharge automatically once they have met all of their requirements.
When Does a Debt Get Discharged?
When a debt can be discharged varies depending upon which type of bankruptcy the debtor files. For example, under a Chapter 7 case, the court usually grants a discharge about 60 days following the 341 meeting of the creditors. So, a debtor may get a discharge as soon as four months from the date that he or she files their bankruptcy petition.
With a Chapter 13 debt reorganization bankruptcy, a debtor receives a discharge once they complete the Chapter 13 repayment plan. Since a Chapter 13 plan requires payment over 3 to 5 years, discharge won’t occur until years after the initial filing.
To learn more about dischargeable and nondischargeable debts in bankruptcy, reach out to a seasoned bankruptcy lawyer for advice. A good attorney will be able to answer your questions and steer you in the right direction.
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