The Bankruptcy Discharge

Debtors file for bankruptcy to have debts discharged in order to have a fresh financial start.  The discharge prevents the debtor from having to re-pay debt that their financial future dictates that they will not be able to pay back.

However, not all debts are dischargeable under federal bankruptcy law.  When making the decision whether or not to file for bankruptcy, it is important to consider which debt will be discharged, and which debt the debtor will still be liable for even after filing for bankruptcy.

In general, the debts that cannot be discharged in most bankruptcies are some tax debts, debts to the government for fines and penalties, domestic support debts, debts incurred from property settlements in divorce, student loan debts, debts involving overpayment of benefits, personal injury debts due to drunk driving charges, debts owed to specific retirement plans that have tax advantages, debts for willful and malicious injuries to people or property, and certain Homeowner Association fee debts.

Debts that are handled fraudulently and maliciously are also not dischargeable if the creditor can prove the debtor had a fraudulent intent, and the creditor asks the court not to discharge the debt.

The nondischargeable debts listed above apply to Chapter 7, Chapter 11, and Chapter 12 bankruptcies.  Chapter 13 bankruptcies have fewer debts which are not dischargeable.  For example, debts involving malicious intent, tax debts, and debts accrued through property settlement in divorce are dischargeable.

Although Chapter 13 has more relaxed discharge rules, Chapter 13 bankruptcy is different from the other forms of bankruptcy.  When filing for Chapter 7 bankruptcy, debts are immediately dischargeable.  In real time, debts are generally discharged roughly four months after the bankruptcy is filed, after creditors have been given time to file exceptions to the dischargeability of the debt owed to them.  In Chapter 13 bankruptcy, the debtor and the creditors work out a repayment plan.  After the repayment plan is paid in full, which usually takes between three to five years, the debts are dischargeable under a Chapter 13 bankruptcy plan.

A debtor does not have to file for discharge.  The bankruptcy filing starts the process of dischargeability.  Creditors may file an objection to the discharge of its loan.  They must file an objection before the deadline.  The deadline is to ensure that a debtor’s bankruptcy does not drag out unnecessarily.  The court will deny dischargeability for reasons such as the debtor did not provide all necessary documents, the debtor fraudulently transferred property or concealed property, or the debts fall under the nondischargeable debts listed in the bankruptcy code.