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Discharge
The Discharge in Bankruptcy
The bankruptcy discharge varies depending on the type of case a debtor files: chapter 7,
11, 12, or 13. Bankruptcy Basics attempts to answer some basic questions about the
discharge available to individual debtors under all four chapters including:
What is a discharge in bankruptcy?
A bankruptcy discharge releases the debtor from personal liability for certain specified
types of debts. In other words, the debtor is no longer legally required to pay any debts
that are discharged. The discharge is a permanent order prohibiting the creditors of the
debtor from taking any form of collection action on discharged debts, including legal
action and communications with the debtor, such as telephone calls, letters, and
personal contacts.
Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a
charge upon specific property to secure payment of a debt) that has not been avoided (i.
e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case.
Therefore, a secured creditor may enforce the lien to recover the property secured by the
lien.
When does the discharge occur?
The timing of the discharge varies, depending on the chapter under which the case is
filed. In a chapter 7 (liquidation) case, for example, the court usually grants the
discharge promptly on expiration of the time fixed for filing a complaint objecting to
discharge and the time fixed for filing a motion to dismiss the case for substantial
abuse (60 days following the first date set for the 341 meeting). Typically, this occurs
about four months after the date the debtor files the petition with the clerk of the
bankruptcy court. In individual chapter 11 cases, and in cases under chapter 12
(adjustment of debts of a family farmer or fisherman) and 13 (adjustment of debts of an
individual with regular income), the court generally grants the discharge as soon as
practicable after the debtor completes all payments under the plan. Since a chapter 12
or chapter 13 plan may provide for payments to be made over three to five years, the
discharge typically occurs about four years after the date of filing. The court may deny an
individual debtor's discharge in a chapter 7 or 13 case if the debtor fails to complete "an
instructional course concerning financial management." The Bankruptcy Code provides
limited exceptions to the "financial management" requirement if the U.S. trustee or
bankruptcy administrator determines there are inadequate educational programs
available, or if the debtor is disabled or incapacitated or on active military duty in a
combat zone.
How does the debtor get a discharge?
Unless there is litigation involving objections to the discharge, the debtor will usually
automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide
for the clerk of the bankruptcy court to mail a copy of the order of discharge to all
creditors, the U.S. trustee, the trustee in the case, and the trustee's attorney, if any. The
debtor and the debtor's attorney also receive copies of the discharge order. The notice,
which is simply a copy of the final order of discharge, is not specific as to those debts
determined by the court to be non-dischargeable, i.e., not covered by the discharge. The
notice informs creditors generally that the debts owed to them have been discharged
and that they should not attempt any further collection. They are cautioned in the notice
that continuing collection efforts could subject them to punishment for contempt. Any
inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the
discharge order promptly within the time required by the rules does not affect the validity
of the order granting the discharge.
Are all of the debtor's debts discharged or only some?
Not all debts are discharged. The debts discharged vary under each chapter of the
Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of
debts from the discharge granted to individual debtors. Therefore, the debtor must still
repay those debts after bankruptcy. Congress has determined that these types of debts
are not dischargeable for public policy reasons (based either on the nature of the debt
or the fact that the debts were incurred due to improper behavior of the debtor, such as
the debtor's drunken driving).
There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12.
A more limited list of exceptions applies to cases under chapter 13.
Generally speaking, the exceptions to discharge apply automatically if the language
prescribed by section 523(a) applies. The most common types of nondischargeable
debts are certain types of tax claims, debts not set forth by the debtor on the lists and
schedules the debtor must file with the court, debts for spousal or child support or
alimony, debts for willful and malicious injuries to person or property, debts to
governmental units for fines and penalties, debts for most government funded or
guaranteed educational loans or benefit overpayments, debts for personal injury
caused by the debtor's operation of a motor vehicle while intoxicated, debts owed to
certain tax-advantaged retirement plans, and debts for certain condominium or
cooperative housing fees.
The types of debts described in sections 523(a)(2), (4) and(6) (obligations affected by
fraud or maliciousness) are not automatically excepted from discharge. Creditors must
ask the court to determine that these debts are excepted from discharge. In the
absence of an affirmative request by the creditor and the granting of the request by the
court, the types of debts set out in sections 523(a)(2), (4) and (6) will be discharged.
A slightly broader discharge of debts is available to a debtor in a chapter 13 case than
in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include
debts for willful and malicious injury to property, debts incurred to pay non-
dischargeable tax obligations, and debts arising from property settlements in divorce or
separation proceedings. Although a chapter 13 debtor generally receives a discharge
only after completing all payments required by the court-approved (i.e., "confirmed")
repayment plan, there are some limited circumstances under which the debtor may
request the court to grant a "hardship discharge" even though the debtor has failed to
complete plan payments. Such a discharge is available only to a debtor whose failure to
complete plan payments is due to circumstances beyond the debtor's control. The
scope of a chapter 13 "hardship discharge" is similar to that in a chapter 7 case with
regard to the types of debts that are excepted from the discharge. A hardship discharge
also is available in chapter 12 if the failure to complete plan payments is due to
"circumstances for which the debtor should not justly be held accountable."
Does the debtor have the right to a discharge or can creditors object to the
discharge?
In chapter 7 cases, the debtor does not have an absolute right to a discharge. An
objection to the debtor's discharge may be filed by a creditor, by the trustee in the case,
or by the U.S. trustee. Creditors receive a notice shortly after the case is filed that sets
forth much important information, including the deadline for objecting to the discharge.
To object to the debtor's discharge, a creditor must file a complaint in the bankruptcy
court before the deadline set out in the notice. Filing a complaint starts a lawsuit
referred to in bankruptcy as an "adversary proceeding."
The court may deny a chapter 7 discharge for any of the reasons described in section
727(a) of the Bankruptcy Code, including failure to provide requested tax documents;
failure to complete a course on personal financial management; transfer or
concealment of property with intent to hinder, delay, or defraud creditors; destruction or
concealment of books or records; perjury and other fraudulent acts; failure to account for
the loss of assets; violation of a court order or an earlier discharge in an earlier case
commenced within certain time frames (discussed below) before the date the petition
was filed. If the issue of the debtor's right to a discharge goes to trial, the objecting party
has the burden of proving all the facts essential to the objection.
In chapter 12 and chapter 13 cases, the debtor is usually entitled to a discharge upon
completion of all payments under the plan. As in chapter 7, however, discharge may not
occur in chapter 13 if the debtor fails to complete a required course on personal
financial management. A debtor is also ineligible for a discharge in chapter 13 if he or
she received a prior discharge in another case commenced within time frames
discussed the next paragraph. Unlike chapter 7, creditors do not have standing to object
to the discharge of a chapter 12 or chapter 13 debtor. Creditors can object to
confirmation of the repayment plan, but cannot object to the discharge if the debtor has
completed making plan payments.
Can a debtor receive a second discharge in a later chapter 7 case?
The court will deny a discharge in a later chapter 7 case if the debtor received a
discharge under chapter 7 or chapter 11 in a case filed within eight years before the
second petition is filed. The court will also deny a chapter 7 discharge if the debtor
previously received a discharge in a chapter 12 or chapter 13 case filed within six years
before the date of the filing of the second case unless (1) the debtor paid all "allowed
unsecured" claims in the earlier case in full, or (2) the debtor made payments under the
plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and
the debtor's plan was proposed in good faith and the payments represented the
debtor's best effort. A debtor is ineligible for discharge under chapter 13 if he or she
received a prior discharge in a chapter 7, 11, or 12 case filed four years before the
current case or in a chapter 13 case filed two years before the current case.
Can the discharge be revoked?
The court may revoke a discharge under certain circumstances. For example, a trustee,
creditor, or the U.S. trustee may request that the court revoke the debtor's discharge in a
chapter 7 case based on allegations that the debtor: obtained the discharge
fraudulently; failed to disclose the fact that he or she acquired or became entitled to
acquire property that would constitute property of the bankruptcy estate; committed one
of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or
failed to explain any misstatements discovered in an audit of the case or fails to provide
documents or information requested in an audit of the case. Typically, a request to
revoke the debtor's discharge must be filed within one year of the discharge or, in some
cases, before the date that the case is closed. The court will decide whether such
allegations are true and, if so, whether to revoke the discharge.
In a chapter 11, 12 and 13 cases, if confirmation of a plan or the discharge is obtained
through fraud, the court can revoke the order of confirmation or discharge.
May the debtor pay a discharged debt after the bankruptcy case has been
concluded?
A debtor who has received a discharge may voluntarily repay any discharged debt. A
debtor may repay a discharged debt even though it can no longer be legally enforced.
Sometimes a debtor agrees to repay a debt because it is owed to a family member or
because it represents an obligation to an individual for whom the debtor's reputation is
important, such as a family doctor.
What can the debtor do if a creditor attempts to collect a discharged debt after the
case is concluded?
If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion
with the court, reporting the action and asking that the case be reopened to address the
matter. The bankruptcy court will often do so to ensure that the discharge is not violated.
The discharge constitutes a permanent statutory injunction prohibiting creditors from
taking any action, including the filing of a lawsuit, designed to collect a discharged debt.
A creditor can be sanctioned by the court for violating the discharge injunction. The
normal sanction for violating the discharge injunction is civil contempt, which is often
punishable by a fine.
May an employer terminate a debtor's employment solely because the person was a
debtor or failed to pay a discharged debt?
The law provides express prohibitions against discriminatory treatment of debtors by
both governmental units and private employers. A governmental unit or private employer
may not discriminate against a person solely because the person was a debtor, was
insolvent before or during the case, or has not paid a debt that was discharged in the
case. The law prohibits the following forms of governmental discrimination: terminating
an employee; discriminating with respect to hiring; or denying, revoking, suspending, or
declining to renew a license, franchise, or similar privilege. A private employer may not
discriminate with respect to employment if the discrimination is based solely upon the
bankruptcy filing.
The bankruptcy discharge varies depending on the type of case a debtor files: chapter 7,
11, 12, or 13. Bankruptcy Basics attempts to answer some basic questions about the
discharge available to individual debtors under all four chapters including:
- a. Discharge in bankruptcy
b. Timing of the discharge
d. Debts that can be discharged
e. Right to a discharge
f. Number of discharges
g. Revoke a discharge
h. Discharge debt payment
i. Collection by creditor
j. Employment and failure to pay discharge
What is a discharge in bankruptcy?
A bankruptcy discharge releases the debtor from personal liability for certain specified
types of debts. In other words, the debtor is no longer legally required to pay any debts
that are discharged. The discharge is a permanent order prohibiting the creditors of the
debtor from taking any form of collection action on discharged debts, including legal
action and communications with the debtor, such as telephone calls, letters, and
personal contacts.
Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a
charge upon specific property to secure payment of a debt) that has not been avoided (i.
e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case.
Therefore, a secured creditor may enforce the lien to recover the property secured by the
lien.
When does the discharge occur?
The timing of the discharge varies, depending on the chapter under which the case is
filed. In a chapter 7 (liquidation) case, for example, the court usually grants the
discharge promptly on expiration of the time fixed for filing a complaint objecting to
discharge and the time fixed for filing a motion to dismiss the case for substantial
abuse (60 days following the first date set for the 341 meeting). Typically, this occurs
about four months after the date the debtor files the petition with the clerk of the
bankruptcy court. In individual chapter 11 cases, and in cases under chapter 12
(adjustment of debts of a family farmer or fisherman) and 13 (adjustment of debts of an
individual with regular income), the court generally grants the discharge as soon as
practicable after the debtor completes all payments under the plan. Since a chapter 12
or chapter 13 plan may provide for payments to be made over three to five years, the
discharge typically occurs about four years after the date of filing. The court may deny an
individual debtor's discharge in a chapter 7 or 13 case if the debtor fails to complete "an
instructional course concerning financial management." The Bankruptcy Code provides
limited exceptions to the "financial management" requirement if the U.S. trustee or
bankruptcy administrator determines there are inadequate educational programs
available, or if the debtor is disabled or incapacitated or on active military duty in a
combat zone.
How does the debtor get a discharge?
Unless there is litigation involving objections to the discharge, the debtor will usually
automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide
for the clerk of the bankruptcy court to mail a copy of the order of discharge to all
creditors, the U.S. trustee, the trustee in the case, and the trustee's attorney, if any. The
debtor and the debtor's attorney also receive copies of the discharge order. The notice,
which is simply a copy of the final order of discharge, is not specific as to those debts
determined by the court to be non-dischargeable, i.e., not covered by the discharge. The
notice informs creditors generally that the debts owed to them have been discharged
and that they should not attempt any further collection. They are cautioned in the notice
that continuing collection efforts could subject them to punishment for contempt. Any
inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the
discharge order promptly within the time required by the rules does not affect the validity
of the order granting the discharge.
Are all of the debtor's debts discharged or only some?
Not all debts are discharged. The debts discharged vary under each chapter of the
Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of
debts from the discharge granted to individual debtors. Therefore, the debtor must still
repay those debts after bankruptcy. Congress has determined that these types of debts
are not dischargeable for public policy reasons (based either on the nature of the debt
or the fact that the debts were incurred due to improper behavior of the debtor, such as
the debtor's drunken driving).
There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12.
A more limited list of exceptions applies to cases under chapter 13.
Generally speaking, the exceptions to discharge apply automatically if the language
prescribed by section 523(a) applies. The most common types of nondischargeable
debts are certain types of tax claims, debts not set forth by the debtor on the lists and
schedules the debtor must file with the court, debts for spousal or child support or
alimony, debts for willful and malicious injuries to person or property, debts to
governmental units for fines and penalties, debts for most government funded or
guaranteed educational loans or benefit overpayments, debts for personal injury
caused by the debtor's operation of a motor vehicle while intoxicated, debts owed to
certain tax-advantaged retirement plans, and debts for certain condominium or
cooperative housing fees.
The types of debts described in sections 523(a)(2), (4) and(6) (obligations affected by
fraud or maliciousness) are not automatically excepted from discharge. Creditors must
ask the court to determine that these debts are excepted from discharge. In the
absence of an affirmative request by the creditor and the granting of the request by the
court, the types of debts set out in sections 523(a)(2), (4) and (6) will be discharged.
A slightly broader discharge of debts is available to a debtor in a chapter 13 case than
in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include
debts for willful and malicious injury to property, debts incurred to pay non-
dischargeable tax obligations, and debts arising from property settlements in divorce or
separation proceedings. Although a chapter 13 debtor generally receives a discharge
only after completing all payments required by the court-approved (i.e., "confirmed")
repayment plan, there are some limited circumstances under which the debtor may
request the court to grant a "hardship discharge" even though the debtor has failed to
complete plan payments. Such a discharge is available only to a debtor whose failure to
complete plan payments is due to circumstances beyond the debtor's control. The
scope of a chapter 13 "hardship discharge" is similar to that in a chapter 7 case with
regard to the types of debts that are excepted from the discharge. A hardship discharge
also is available in chapter 12 if the failure to complete plan payments is due to
"circumstances for which the debtor should not justly be held accountable."
Does the debtor have the right to a discharge or can creditors object to the
discharge?
In chapter 7 cases, the debtor does not have an absolute right to a discharge. An
objection to the debtor's discharge may be filed by a creditor, by the trustee in the case,
or by the U.S. trustee. Creditors receive a notice shortly after the case is filed that sets
forth much important information, including the deadline for objecting to the discharge.
To object to the debtor's discharge, a creditor must file a complaint in the bankruptcy
court before the deadline set out in the notice. Filing a complaint starts a lawsuit
referred to in bankruptcy as an "adversary proceeding."
The court may deny a chapter 7 discharge for any of the reasons described in section
727(a) of the Bankruptcy Code, including failure to provide requested tax documents;
failure to complete a course on personal financial management; transfer or
concealment of property with intent to hinder, delay, or defraud creditors; destruction or
concealment of books or records; perjury and other fraudulent acts; failure to account for
the loss of assets; violation of a court order or an earlier discharge in an earlier case
commenced within certain time frames (discussed below) before the date the petition
was filed. If the issue of the debtor's right to a discharge goes to trial, the objecting party
has the burden of proving all the facts essential to the objection.
In chapter 12 and chapter 13 cases, the debtor is usually entitled to a discharge upon
completion of all payments under the plan. As in chapter 7, however, discharge may not
occur in chapter 13 if the debtor fails to complete a required course on personal
financial management. A debtor is also ineligible for a discharge in chapter 13 if he or
she received a prior discharge in another case commenced within time frames
discussed the next paragraph. Unlike chapter 7, creditors do not have standing to object
to the discharge of a chapter 12 or chapter 13 debtor. Creditors can object to
confirmation of the repayment plan, but cannot object to the discharge if the debtor has
completed making plan payments.
Can a debtor receive a second discharge in a later chapter 7 case?
The court will deny a discharge in a later chapter 7 case if the debtor received a
discharge under chapter 7 or chapter 11 in a case filed within eight years before the
second petition is filed. The court will also deny a chapter 7 discharge if the debtor
previously received a discharge in a chapter 12 or chapter 13 case filed within six years
before the date of the filing of the second case unless (1) the debtor paid all "allowed
unsecured" claims in the earlier case in full, or (2) the debtor made payments under the
plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and
the debtor's plan was proposed in good faith and the payments represented the
debtor's best effort. A debtor is ineligible for discharge under chapter 13 if he or she
received a prior discharge in a chapter 7, 11, or 12 case filed four years before the
current case or in a chapter 13 case filed two years before the current case.
Can the discharge be revoked?
The court may revoke a discharge under certain circumstances. For example, a trustee,
creditor, or the U.S. trustee may request that the court revoke the debtor's discharge in a
chapter 7 case based on allegations that the debtor: obtained the discharge
fraudulently; failed to disclose the fact that he or she acquired or became entitled to
acquire property that would constitute property of the bankruptcy estate; committed one
of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or
failed to explain any misstatements discovered in an audit of the case or fails to provide
documents or information requested in an audit of the case. Typically, a request to
revoke the debtor's discharge must be filed within one year of the discharge or, in some
cases, before the date that the case is closed. The court will decide whether such
allegations are true and, if so, whether to revoke the discharge.
In a chapter 11, 12 and 13 cases, if confirmation of a plan or the discharge is obtained
through fraud, the court can revoke the order of confirmation or discharge.
May the debtor pay a discharged debt after the bankruptcy case has been
concluded?
A debtor who has received a discharge may voluntarily repay any discharged debt. A
debtor may repay a discharged debt even though it can no longer be legally enforced.
Sometimes a debtor agrees to repay a debt because it is owed to a family member or
because it represents an obligation to an individual for whom the debtor's reputation is
important, such as a family doctor.
What can the debtor do if a creditor attempts to collect a discharged debt after the
case is concluded?
If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion
with the court, reporting the action and asking that the case be reopened to address the
matter. The bankruptcy court will often do so to ensure that the discharge is not violated.
The discharge constitutes a permanent statutory injunction prohibiting creditors from
taking any action, including the filing of a lawsuit, designed to collect a discharged debt.
A creditor can be sanctioned by the court for violating the discharge injunction. The
normal sanction for violating the discharge injunction is civil contempt, which is often
punishable by a fine.
May an employer terminate a debtor's employment solely because the person was a
debtor or failed to pay a discharged debt?
The law provides express prohibitions against discriminatory treatment of debtors by
both governmental units and private employers. A governmental unit or private employer
may not discriminate against a person solely because the person was a debtor, was
insolvent before or during the case, or has not paid a debt that was discharged in the
case. The law prohibits the following forms of governmental discrimination: terminating
an employee; discriminating with respect to hiring; or denying, revoking, suspending, or
declining to renew a license, franchise, or similar privilege. A private employer may not
discriminate with respect to employment if the discrimination is based solely upon the
bankruptcy filing.
 | |  | |  | |  |
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