What Is a Bankruptcy Discharge?
We often talk about obtaining a “discharge” in bankruptcy. But you may not understand the exact meaning of that word. Does a discharge mean that all of your debts are erased? Or can you still be required to pay back some of your creditors even after the bankruptcy ends?
Releasing You From Personal Liability
A discharge is basically a court order that releases you from any personal liability for a particular debt. A discharge does not actually eliminate or erase the existence of the debt. It simply means that the creditor can no longer take legal action against you to collect on the debt. Once granted, the discharge is permanent, meaning it will never expire.
How Does Discharge Differ in Chapter 7 and Chapter 13 Cases?
The type of bankruptcy filing directly affects the timing of a discharge. In a Chapter 7 case, the discharge is usually granted within about 4 months of the initial filing. With a Chapter 13 case, in contrast, it often takes about 4 years to obtain a discharge.
Why is the difference so substantial? Well, in a Chapter 7 case, a trustee conducts a one-time liquidation of any property you have that is not otherwise exempt from the bankruptcy process. Oftentimes, all or most of your property will be exempt, so there is very little left to liquidate.
A Chapter 13 case is more involved. Here, the goal is not to liquidate your property. Instead, you submit a plan to the bankruptcy court for repaying your creditors over time. The term of this repayment plan normally varies between 3 and 5 years. Assuming you successfully complete the plan, the bankruptcy court will issue a discharge of any remaining debt at that point.
How Does a Discharge Affect My Mortgage or Car Loan?
A bankruptcy discharge effectively leaves unsecured creditors with no legal recourse against you. The same is not true, however, for secured creditors. If you have an outstanding mortgage or car loan, the creditor can foreclose upon any lien it has on the secured property. Your bankruptcy discharge does not affect the lien.
Can All Debts Be Discharged?
No. Federal bankruptcy law contains a long list of debts that are considered “non-dischargeable” in Chapter 7 or Chapter 13. For example, a bankruptcy court will not discharge any debts relayed to child support or alimony. Similarly, you cannot discharge any debts owed to the government as the result of criminal fines or civil penalties. Student loan debt is also generally exempt from discharge except under very limited circumstances.
Speak with a Southeast Iowa Bankruptcy Lawyer Today
You may also find that some of your debts are not discharged because you failed to follow proper bankruptcy procedures. For instance, if you accidentally forget to list a debt on your forms, the creditor may later object to a discharge.
The best way to avoid such issues is to work with an experienced Southeast Iowa bankruptcy attorney from the outset. Contact the Noyes Law Office, P.C., today to schedule a free consultation if you are considering a Chapter 7 or Chapter 13 bankruptcy filing.