The main goal of most consumer bankruptcy cases is to get a fresh financial start through writing off debts. The legal bankruptcy term for write-off is “discharge.” In virtually all successful Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” cases, there will be a discharge of some or all of your debt.
In Chapter 7
People file Chapter 7 cases to obtain a discharge of their debts. Chapter 7 quickly wipes out debts that can be discharged.
Most debts qualify for discharge.
You may not want to discharge certain secured debts, if you wish to retain the item, such as your home or car. You may want to formally “reaffirm” such debts—agree to continue to be liable in return for keeping the collateral. See Section 524(c) of the Bankruptcy Code. You definitely want to discuss thoroughly whether you should reaffirm any of your debts with me.
The big benefit of Chapter 7 is speed. Most cases finish within 4 months of filing, and do so with a court order discharging your debts. Rarely, the debtor has to give up some asset(s) to get the discharge.
In Chapter 13
The road to discharge is much longer under Chapter 13 and most cases require paying something to your unsecured creditors before discharge.
Whether and how much you pay depends on many circumstances. Chapter 13 involves proposing and getting bankruptcy court approval of an official plan of payments. That plan usually gives you 3 to 5 years to do what you need to do. Often that includes paying “secured” and “priority” debts, such as a home mortgage arrears or back income taxes. The “general unsecured” debts usually only get paid any money that is left over.
Only after your successful completion of this payment plan do you get a discharge of all or most of your remaining debts.
What Is the Exact Legal Effect of the Discharge of Debts?
The Chapter 7 or Chapter 13 Order of Discharge both contain pertinent language that is extremely short and sweet:
IT IS ORDERED: A discharge under [the pertinent section of the Bankruptcy Code] is granted to [the debtor].
The legal effect of this discharge is described in Section 524(a)(2) of the Bankruptcy Code as follows:
“A discharge . . . operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor. . . .”
What does this mean?
Creditors cannot collect discharged debts
This order means that no one may make any attempt to collect a discharged debt from the debtors personally. For example, creditors cannot sue, garnish wages, assert a deficiency, or otherwise try to collect from the debtors personally on discharged debts. Creditors cannot contact the debtors by mail, phone, or otherwise in any attempt to collect the debt personally. Creditors who violate this order can be required to pay debtors damages and attorney’s fees.
The discharge court order is permanent, and the injunction that flows from it is permanent. Because of the penalties, most creditors are careful to comply. If you have any indication that any of your creditors is not complying, tell me immediately.
