What happens after my bankruptcy discharge? Before making big financial decisions, some people consult a lawyer. Call the Cherney Law Firm, L.L.C. for advice.
The Aftermath of a Bankruptcy Discharge
Are you in a dilemma about what happens to your debts and belongings upon a bankruptcy discharge? The bankruptcy process can be devastating, and most debtors don’t know what to do after a discharge.
In a bankruptcy discharge, most of your debts are released, and you no longer need to pay them. In such cases, the debt collectors and lenders have no legal rights to attempt to collect the debts discharged by your bankruptcy proceedings.
What Is a Bankruptcy Discharge, and What Debts Does It Cover?
A bankruptcy discharge is a legal tool that releases debtors from personal liability for particular debts. The court issues a discharge order toward the end of the case, which releases a permanent order to prevent creditors from collecting the discharged debts.
A bankruptcy discharge order wipes out qualifying debts such as medical bills, credit card invoices, utility bill balances, personal loans, etc. A creditor is prohibited from taking legal action and communicating with the debtor concerning the discharged debts.
Debts Not Covered Under Bankruptcy Discharge
However, a discharge doesn’t apply to all debts you may owe. They vary depending on the chapter of the Bankruptcy Code. Section 523 (a) of the Bankruptcy Code provides exceptions for various debts from being discharged.
Examples of common non-dischargeable debts according to US law include:
- Many tax-related debts
- Federal student loans
- Government fines and penalties
- Debts not included in court filings
- Debts for spousal, child support/alimony
- Debts for willful injuries to person/property
- Debts for personal injury resulted from the debtor’s operation of a motor vehicle while intoxicated.
Some debts are dischargeable in Chapter 13 bankruptcy but not in Chapter 7. They include:
- Debts for malicious injury to property
- Debts arising from property settlements in separation/divorce
- Debts to pay non-dischargeable tax obligations.
How Can a Debtor Get a Bankruptcy Discharge?
A bankruptcy discharge will happen automatically, especially if there is no litigation involving objections to the discharge. As per the Federal Rules of Bankruptcy Procedure, the bankruptcy court clerk mails a copy of the discharge order to all creditors, the debtor, the debtor attorney, the trustee in the case, the US trustee, and the trustee’s attorney.
The discharge is usually a notice informing the creditors that debts owed to them have been discharged and that they should not attempt any collection. The order copy does not specify the debts not covered by the discharge. Collectors are cautioned that attempts to continue collection efforts could subject the party to contempt and is punishable.
When Does Bankruptcy Discharge Occur?
The timing of a bankruptcy discharge may vary depending on the chapter under which the debtor filed the case.
For instance, in a Chapter 7 bankruptcy case (liquidation), the court issues the discharge order promptly on the expiration of the time fixed for a complaint filed for objecting to discharge. The court also considers the time fixed for submitting a motion to dispose of the case for any substantial abuse. This is usually 60 days after the first date set for the 341 meeting. This kind of discharge mostly occurs about 4 months after the bankruptcy petition is filed with the bankruptcy court clerk.
Chapter 11, chapter 12, and Chapter 13 cases get the discharge order from the court upon the debtor completing all payments under the plan. Payment plans for Chapter 12 (adjustments of debts of a family farmer or fisherman) and Chapter 13 (adjustment of debts of an individual with income) usually take 3 to 5 years. Therefore, the court generally grants a discharge four years after the filing date.
Although Chapter 13 debtors usually receive a discharge upon completing payments described in a repayment plan, debtors can request the court to grant the order of discharge in certain circumstances, such as hardship.
Debtors can receive a hardship discharge despite failing to complete a court-approved payment plan. The hardship discharge is only available when the circumstances are beyond the debtor’s control. It is also available in Chapter 12 in certain instances.
Discharge Maybe Denied
Individual debtors’ liquidation or bankruptcy cases can be denied discharge by the court, especially if they fail to complete an instructional course on financial management. The Bankruptcy Code offers limited exceptions and considerations if inadequate educational programs are available.
What Happens When Your Debt Is Discharged?
A bankruptcy discharge releases debtors from liable debts. Upon receiving a discharge order, debt collectors and lenders are prohibited from attempting to collect the discharged debt.
However, a bankruptcy discharge doesn’t necessarily mean that the debtor will get back their belongings. In fact, a creditor continues to have a lien over your property.
But, if you acquire new assets after a bankruptcy discharge, the trustee can’t claim them.
Does Your Credit Score Change After Bankruptcy Discharge?
Most people view bankruptcy as a chance to make a fresh start. But, once you clean your financial slate from bankruptcy, you’ll deal with credit-related issues. For instance, bankruptcy will affect your credit score as it appears on your credit report for up to 7 or 10 years from the petition filing date. Liquidation and bankruptcy will also affect your FICO score for 10 years.
For credit reporting agencies, individual credit scores play a vital role in preparing credit reports. Therefore, bankruptcy will affect your credit scores, making owning a home or receiving a car loan challenging.
It should be noted that individuals making payments via Income Payments Agreement will still be required to make the payments for 3 years, even upon discharge. Your home will be returned to you if the creditors haven’t done the following within 3 years of your bankruptcy petition being filed:
- Sold your rightful share to someone else.
- Applied to the court for a changing order.
- Agreed to pay the creditor the value of your share.
- Applied to the court for an order that house members leave home.
How Can Bankruptcy Lawyers Help During Bankruptcy Discharge?
Facing financial difficulties alone can be a stressful and overwhelming experience. Consider hiring a bankruptcy attorney who can alleviate your problems and assist you in dealing with your creditors. They can help you understand your circumstances better and suggest suitable solutions.
At Cherney Law Firm, LLC, we are dedicated to guiding clients through legal options and helping them resolve their debt through bankruptcy or alternative solutions. If you have any queries on bankruptcy paperwork or other financial troubles, don’t hesitate to get in touch with us. Contact us to schedule a free initial consultation today!