Ever wonder what happens after you file bankruptcy?
Do you just telephone an attorney and with the push of a button your debts disappear?
No, that’s not quite how it works (although many who call me seem to think it is).
The different bankruptcy chapters have different requirements to get a discharge of your debts.
What Is A Bankruptcy Discharge?
The ultimate goal of most bankruptcy cases is to obtain a discharge of debts.
A discharge is the removal of the legal obligation to repay a debt.
In more legalistic terms, it is a permanent injunction preventing creditors from trying to collect on the debt.
When Is A Discharge Granted?
Entry of discharge occurs at different times, depending on which Chapter your case is filed under.
In a Chapter 7 case, assuming no objections to discharge are filed, the discharge is typically entered within a couple of weeks after expiration of the objections deadline, which is about 3-4 months after the case was filed.
In a Chapter 13 case, the discharge is not entered until you have completed all payments required under your repayment plan. Most Chapter 13 case plans are for either 36 or 60 months. Entry of discharge usually occurs a few months after completion of the plan payments and other requirements.
In a Chapter 11 case, the discharge can be entered before all plan payments are completed, but sometimes courts wait to enter the discharge until all payments are completed. So, it just depends on the case and the Judge.
When Is A Discharge Not Granted?
In bankruptcy a discharge is neither honorable nor dishonorable, like in the military.
You either get a discharge, or you don’t.
Not all bankruptcy cases result in a discharge being entered.
One’s entire discharge can be denied for many reasons, such as making false statements on your bankruptcy papers (omitting assets, failing to list debts, failing to account for where money/assets you had have gone, or engaging in a scheme to defraud your creditors, etc.).
Creditors also have the opportunity in every bankruptcy case to object to the discharge of their individual debts, if they can prove the debts were incurred through fraud.
Some debts are not dischargeable regardless of whether an objection is filed, such as student loan debts, domestic support obligations, certain taxes and several others.
See my article for more information on which debts are dischargeable in bankruptcy.
A Discharge Is Not A Dismissal
Sometimes cases will be dismissed without a discharge.
This can occur either voluntarily (you decide you don’t want to proceed with a case, usually in a Chapter 13).
Or it can occur involuntarily pursuant to a request from a creditor or the bankruptcy trustee for failure to comply with rules and requirements, or not being eligible, and so forth.
Dismissal and Discharge are two completely different things.
These are important terms to understand when communicating with a bankruptcy attorney.
When Do I Get My Bankruptcy Discharge?
This depends on which Chapter you filed.
In a Chapter 13 case, for example, you receive your discharge about 4-6 months after you complete all required payments due under your plan, assuming you have complied with all other requirements.
In a Chapter 7 case, the discharge is usually entered after the expiration of the objections period for creditors to object to discharge of their debts. This is 60 days after the initial date set for the Meeting with the Trustee in your case. Typically the discharge will be entered 4-5 months after the filing of the case, but objections or other factors can delay this.
How Long Does The Bankruptcy Discharge Last?
The discharge lasts forever. It is permanent.
The only exception is if the discharge is revoked due to later discovery of some sort of fraud or other wrongdoing in connection with your bankruptcy case.
The time limit for seeking revocation of a discharge in a Chapter 7 case is the later of one year after entry of discharge, or the date the case is closed.
When Is My Case Closed And Considered Finished?
A little known fact (to non-bankruptcy attorneys, and even some less-experienced bankruptcy attorneys) is that the discharge in a Chapter 7 bankruptcy case is NOT the end of the case.
In fact, in Chapter 7 cases where assets are being liquidated and distributed to creditors, the cases can be open for years.
Why should you care (one might ask) when the case is closed if you already have your discharge?
Because until the case is closed, particularly in a Chapter 7 case, the bankruptcy trustee remains the legal owner of all assets which are property of the bankruptcy estate.
That basically means everything you owned or had rights to on the date your case was filed.
And that means until the Chapter 7 case is closed, you cannot do anything with your assets, such as sell your house or give your car to your favorite nephew without permission from the Trustee.
In the normal Chapter 7 case, the case will be closed within a couple of weeks after entry of the discharge.
But not always.
The Trustee could be looking into selling assets, or seeking to recover transfers or any number of actions to benefit creditors.
And that can sometimes take years.
In those situations it is important to have your attorney monitor the case for closing.
If it does not close within a reasonable time, your attorney can file a Motion with the court to “abandon” the property back to you.
Image courtesy of Wikipedia