What Is a Chapter 7 Debt Discharge?

No matter what type of bankruptcy you seek under the U.S. Bankruptcy Code, chances are that some or even all of your debt can be discharged. A discharge means you are not personally liable for the money and do not need to pay it back. The creditor you owe, such as a hospital or credit card company, cannot call or take collection actions against you once the debt is permanently discharged.

Depending on their financial situation, people often file a Chapter 7 bankruptcy to remove credit card debt and seek debt relief. You can read more about what to expect if you are new to the Chapter 7 bankruptcy process.

Those filing Chapter 13 bankruptcy are required to repay most of their debt in a repayment plan. Some debts may have a bankruptcy discharge, but filers may have to keep personal liability for other debts.

Read on about bankruptcy basics regarding Chapter 7 debt discharge releases.

Debt Discharge Comes After Selling Off Assets

Chapter 7 bankruptcy may involve liquidating (or selling off) assets to pay past debts. Only after this process is completed can you have qualifying debts discharged. Some property is protected from liquidation by federal or state bankruptcy exemptions.

Many people filing for Chapter 7 can keep most of their property. It will be up to the filer's attorney and bankruptcy trustee to decide what they can keep, what deals they can make with the creditor, and what they need to give up in their bankruptcy case. Learn more about the U.S. trustee here, who generally appoints the bankruptcy trustee in a bankruptcy case.

Once nonexempt assets are liquidated, a court order will discharge debts so long as there has been no objection made to discharge or dischargeability. The Chapter 7 bankruptcy discharge process occurs about four months after you first file in bankruptcy court.

Remember that the filer must complete educational classes on credit counseling within 180 days before filing and on debt management between filing and receiving the discharge, or the judge may deny the debt discharge.

Debts That Cannot Be Discharged

According to bankruptcy law, there are many exceptions to the debts you can get rid of in Chapter 7 bankruptcy. You should consult an experienced bankruptcy attorney for a detailed review of your debts.

Debts that cannot generally be discharged include:

  • Alimony and child support
  • Certain tax debts
  • Student loans
  • Certain educational debts
  • Debts owed in a personal injury lawsuit
  • Debts for certain criminal restitution orders

You must pay these debts back according to state and federal law.

Use Reaffirmation To Stop Creditors Taking Your Property

Some creditors can keep their rights over your property even following a discharge. One way this can happen is through a lien on your secured debts. A creditor can use a lien to enforce past-due payment or take back the property.

For example, let's say you keep certain secured property, such as your car. Your creditor may seek for you to reaffirm the debt secured by a lien. Under a reaffirmation agreement:

  • You will remain liable for this debt
  • You will pay back some or all of a debt
  • You pay even though the debt would be discharged in bankruptcy
  • The creditor will not repossess the property as long as you continue to pay the debt

Reaffirmation must occur before the order of discharged debt is entered. If you want to keep a car or other property, you should discuss this with the creditor early on. Your attorney can handle this for you and try to negotiate a fair payment schedule.

Exemptions and Property That Can Be Taken Before a Discharge

Bankruptcy is intended to help you get relief from the burden of debt, so removing all of your property would be counterproductive, as you would need to rebuy a car or other items.

Property considered necessary for modern life may be exempt from creditors taking it back. But you may need to petition a judge to stop them.

Some examples of the property a creditor might try to take back include:

  • Motor vehicles or a second vehicle
  • A second home or vacation home
  • Expensive clothing
  • Household furniture
  • Jewelry
  • Tools used in your work
  • Musical instruments (unless you can prove you are a professional musician)
  • Cash, bank accounts, stocks, bonds, and other investments
  • Pensions
  • A portion of the equity in your home
  • A portion of earned but unpaid wages
  • Public benefits that have accumulated in a bank account
  • Damages awarded for personal injury
  • Family heirlooms

While this list looks scary, remember that creditors can try to take these items but may fail if these items are considered to be exemptions. Some items on this property list may be protected by your state's exemptions or wildcard exemptions, as they are considered essential for work or daily life. It is important to consult an attorney in your state who concentrates in bankruptcy practice to fully understand which of these and other items are exempt and to what extent they are exempt.

A creditor will receive a notice saying your debts have been discharged. They can try reaffirming these items or sue you for debt if they disagree with the discharge.

A discharge order is considered final once the discharge of debt is in place. A creditor cannot sue, try to take your property, or harass you.

How To Get a Debt Discharge With a Bankruptcy Attorney

Filing bankruptcy is often complicated, but sometimes it's appropriate for an individual to obtain a fresh start. Start the process by asking an attorney who concentrates in bankruptcy law how the laws and regulations would affect your specific assets and debts.

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