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Chapter 7 & 13 Bankruptcy Discharge

What is bankruptcy discharge?

When a bankruptcy case receives a “discharge” it means that the consumer is released from certain specified types of debts, or that he/she is no longer legally or personally liable to pay debts that the bankruptcy court has already forgiven; but sometimes certain items survive bankruptcy, and the creditors would naturally try to resume collection from the consume.

What does personal liability mean?

It means that the creditor that has obtained judgment can use certain legal actions against the consumer (bank levy and/or wage garnishment).

Which debts will usually survive bankruptcy?

In a Chapter 7 case, most debts are discharged except the following:

• Unlisted creditor. Sometimes the consumer forgets or fails to list some of the creditors and they all of a sudden come out of nowhere to collect. The court requires the consumer to provide the latest addresses of all his/her creditors that they may be sent a bankruptcy notice.

• The bankruptcy procedure generally does not forgive most student loans, unless repayment of the loan would cause the consumer and/or his/her family undue hardship (more on student loans below).

How can student loans be forgiven?

The consumer must apply and qualify for a hardship discharge of a student loan. Although there in not yet a standardized method for it, there is an (three-part) eligibility test in place:

Income based. If the consumer is going to be forced into paying off the student loan and it causes him/her undue hardship or it would be really tough on his/her family to maintain a minimum standard of living, then the court may consider his/her application.

Time period. If the condition mentioned above (hardship) stretches for a significant portion of the repayment period, it is proof that the consumer cannot really afford to push through with the plan.

Good Faith. Even if circumstances were tough on the consumer, if he/she has shown that he/she had at least tried to repay even a small portion of the debt prior to the hardship application, the court might reconsider his/her case.

• Recent federal, state, and local taxes.
• Child support and spousal maintenance (alimony).
• Government-imposed restitution, fines, and penalties.
• Court fees.
• Debts resulting from driving while intoxicated.
• Debts not dischargeable in a previous bankruptcy because of the debtor's fraud.

The general rule on a Chapter 13 case is that discharge is served or handed down only after the completion of the payment plan, but if the consumer cannot afford to finish the plan, he/she can avail of the 11 U.S.C. 1328 "hardship discharge" privilege.

More information about bankruptcy discharges:

Hardship discharges in Chapter 13 bankruptcy
When is bankruptcy discharged