WHAT IS A DISCHARGE IN BANKRUPTCY?
Under the federal bankruptcy statute, a discharge is a release of the
debtor from personal liability for certain specified types of debts. In
other words, the debtor is no longer required by law to pay any debts
that are discharged. The discharge operates as a permanent order
directed to the creditors of the debtor that they refrain 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 relieved of personal liability for all debts
that are discharged, 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 chapter 11 (reorganization) cases, the discharge
occurs upon confirmation of a chapter 11 plan. In cases under chapter 12
(adjustment of debts of a family farmer) and 13 (adjustment of debts of
an individual with regular income), the court 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.
HOW DOES THE DEBTOR GET A
Unless there is litigation involving objections to the discharge, the
debtor will 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 United
States 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 18 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 non-dischargeable 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, and debts for certain
condominium or cooperative housing fees.
The types of debts described in sections 523(a)(2), (4), (6), and
(15) (obligations affected by fraud or maliciousness or certain debts
incurred in connection with property settlements arising out of a
separation agreement or divorce decree) 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 subsequent granting of the request by the
court, the types of debts set out in sections 523(a)(2), (4), (6), and
(15) will be discharged.
A broader discharge of debts is available to a debtor in a
chapter 13 case than in a
chapter 7 case. As a general rule, the chapter 13 debtor is
discharged from all debts provided for by the plan except certain
long-term obligations (such as a home mortgage), debts for alimony or
child support, debts for most government funded or guaranteed
educational loans or benefit overpayments, debts arising from death or
personal injury caused by driving while intoxicated or under the
influence of drugs, and debts for restitution or a criminal fine
included in a sentence on the debtor's conviction of a crime. 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?
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 United States 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. A creditor who desires to object to the debtor's
discharge must do so by filing a complaint in the bankruptcy court
before the deadline set out in the notice. Filing of a complaint starts
a lawsuit referred to in bankruptcy as an "adversary proceeding." A
chapter 7 discharge may be denied for any of the reasons described in
section 727(a) of the Bankruptcy Code, including the 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 a chapter 7 or 11
case commenced within six years 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
In chapter 12 and
chapter 13 cases, the debtor is entitled to a discharge upon
completion of all payments under the plan. The Bankruptcy Code does not
provide grounds for objecting to the discharge of a chapter 12 or
chapter 13 debtor. Creditors can object to confirmation of the repayment
plan, but can- not object to the discharge if the debtor has completed
making plan payments.
CAN THE DISCHARGE BE REVOKED?
A discharge can be revoked under certain circumstances. For instance,
a trustee, creditor, or the United States 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; the debtor failed to disclose the fact that he
or she acquired or became entitled to acquire property that would
constitute property of the bankruptcy estate; or the debtor committed
one of several acts of impropriety described in section 727(a)(6) of the
Bankruptcy Code. Typically, a request to revoke the debtor's discharge
must be filed within one year after the granting of the discharge or, in
some cases, before the date that the case is closed. It is up to the
court to determine whether such allegations are true and, if so, to
revoke the discharge.
chapter 13 case, if confirmation of a plan or the discharge is
obtained through fraud, the court can revoke the order of confirmation
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
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.
AN EMPLOYER TERMINATE A DEBTOR'S EMPLOYMENT SOLELY
BECAUSE THE PERSON WAS A DEBTOR OR FAILED TO REPAY A DISCHARGED DEBT?
|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 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.
Excerpts from Bankruptcy Basics
A Public Information Series of the Bankruptcy Judges Division
Administrative Office of the United States Courts
Revised Second Edition