The point of filing bankruptcy is to get relief from your debts. So, when and how DO those debts get “discharged”—legally written off—in a regular Chapter 7 bankruptcy?
Here’s what you need to know:
1. You WILL receive a discharge of your debts, as long as you play by the rules. Under Section 727 of the Bankruptcy Code, the bankruptcy court “shall grant the debtor a discharge” except in relatively unusual circumstances:
- If you’re not an individual! Corporations and other kinds of business entities do not receive a discharge of debts, only human beings do.
- If you’ve received a discharge in an earlier case too recently. You can’t get a new discharge of your debts in a Chapter 7 case if:
- you already received a discharge of debts in an earlier Chapter 7 case filed no more than 8 years before your present case was filed, or
- you already received a discharge of debts in an earlier Chapter 13 case filed no more than 6 years before your present case was filed (except under limited conditions).
- If you hide or destroy assets, conceal or destroy records about your financial condition.
- If in connection with your Chapter 7 case you make a false oath, a false claim, or withhold information or records about your property or financial affairs.
2. ALL your debts will be discharged, UNLESS a particular debt fits one of the specific exceptions. Section 523 of the Code lists those “exceptions to discharge.” I’m not going to discuss those exceptions in detail here, but the main ones include:
- most but not all taxes
- debts incurred through fraud or misrepresentation, including recent cash advances and “luxury” purchases
- debts which were not listed on the bankruptcy schedules on time
- money owed because of embezzlement, larceny, or through other kinds of theft or fraud in a fiduciary relationship
- child and spousal support
- claims against you for intentional injury to another person or property
- most but not all student loans
- claims against you for causing injury or death to someone by driving while intoxicated (also applies to boating and flying)
3. A discharge from the bankruptcy court stops a creditor from ever attempting to collect on the debt. Under Section 524, the discharge order acts as a court injunction against the creditor from taking any action—through a court procedure or on its own–to “collect, recover, or offset any such debt.” If a creditor violates this injunction by trying to pursue a discharged debt, the bankruptcy court may hold the creditor in contempt of court and, depending on the seriousness of its illegal behavior, can require the creditor to pay sanctions.