People who are burdened by debt use bankruptcy to seek protection and relief from creditors. This is possible through a court order called bankruptcy discharge, which is issued at the end of the bankruptcy case to erase some or all debts. However, there are certain types of debts that cannot be erased by bankruptcy. The bankruptcy discharge also differs according to the type of bankruptcy the debtor files.
A bankruptcy discharge releases the debtor from his or her legal responsibility to pay the discharged debts. The creditors are also forbidden from collecting the discharged debts. Even though a debtor is no longer liable to pay what he or she owes, a creditor has the right to take the property that secures a debt.
The court grants a bankruptcy discharge before the bankruptcy case is closed. The length of time it takes depends upon the type of bankruptcy filed by a debtor. In a Chapter 7 case, for instance, the discharge is ordered after the cut-off dates for filing objections to discharge or a motion to dismiss for bankruptcy abuse. Usually, this happens after four months from the date of bankruptcy filing. In a Chapter 13 case, the court orders the discharge right after the debtor completes the Chapter 13 repayment plan, which takes three or five years.
The debtor gets a discharge if no one files an objection. A copy of the court order is mailed to the U.S. trustee, the bankruptcy trustee, the debtor, debtor's attorney, and all the creditors. The notice is simply general information that the debts have been discharged and they can no longer try to collect for payments. The details of the discharged debts are not mentioned in the notice.
Most types of debts are dischargeable. For example, medical bills, credit card debt and most loans and court judgments are all dischargeable debts. Those that are not discharged must be paid by the debtor after leaving bankruptcy. There are non-dischargeable types of debts because it was decided by Congress that debtors need to pay them back for public policy reasons. For example, child support is very important to society.
There are three different types of debts that are non-dischargeable. First, there are debts that can never be discharged. These include domestic support obligations, government fines and penalties, and debts for injuries caused by drunk driving. Second, debts are non-dischargeable except if the debtor can show the court that they have to be. Examples of these are student loans and income tax debts. Third, there are debts that are not discharged because the creditor successfully filed an objection. Included in these are debts obtained through fraud or willful and malicious acts.
If ever the creditor of a discharged debt tries to collect for payment, the debtor must notify the creditor that the debt has been discharged. If this does not stop the creditor from pursuing the debtor, the creditor can be sued for harassment.