The Bankruptcy Discharge
The discharge is the central goal of most bankruptcy cases. It is a court order that eliminates personal liability on most pre-petition debts and permanently enjoins creditors from any further attempt to collect them. The discharge does not erase the debt from history – it does not technically pay the debt – but it makes the debt legally unenforceable against the debtor personally.
When the Discharge Is Entered
- Chapter 7: Approximately 60 to 90 days after the 341 meeting of creditors, if no objections are pending. Total elapsed time from filing to discharge is typically 4 to 6 months.
- Chapter 13: After completion of all plan payments, which typically takes 3 to 5 years. The debtor must also complete a second financial-management course and certify compliance with various plan requirements.
- Chapter 11 (Individual): Generally at completion of plan payments.
- Subchapter V: Either at confirmation (consensual plan) or upon completion of all plan payments (non-consensual plan).
Debts That Are Discharged
The discharge applies to most pre-petition unsecured debts:
- Credit cards and store cards
- Medical bills
- Personal loans, signature loans, payday loans
- Most older income tax liabilities (with timing requirements – see tax debt and bankruptcy)
- Deficiency balances after foreclosure or repossession
- Old utility, cell-phone, and similar accounts
- Money judgments from civil lawsuits
- Most contract debts
- Business debts personally guaranteed
Debts That Are Not Discharged
Section 523 of the Bankruptcy Code lists categories of debt that are non-dischargeable:
- Domestic support obligations (child support, alimony, and equitable-distribution payments characterized as support)
- Most student loans, absent a showing of undue hardship in an adversary proceeding (see student loans and bankruptcy)
- Recent income taxes not meeting the 3-year / 2-year / 240-day timing tests, plus any tax for which a return was never filed or was filed late within the past 2 years, plus trust-fund payroll taxes
- Debts for personal injury caused by DUI
- Criminal restitution and most government fines
- Debts not listed on the schedules in an asset case (omission risks losing the discharge as to those debts)
- Debts arising from fraud, false pretenses, false representations, embezzlement, or willful and malicious injury, if the creditor timely files an adversary proceeding and prevails
- Debts to a single creditor for luxury goods or services exceeding $800 incurred within 90 days before filing, presumptively non-dischargeable
- Cash advances exceeding $1,100 obtained within 70 days before filing, presumptively non-dischargeable
- Debts incurred to pay non-dischargeable taxes are themselves non-dischargeable
Section 727 Discharge Denial
In rare cases, the entire discharge can be denied under Section 727 for specific misconduct: concealment of assets, false oaths, destruction of records, failure to explain loss of assets, refusal to obey court orders, prior recent discharge, and similar conduct. Section 727 actions are filed as adversary proceedings within 60 days of the 341 meeting.
The Discharge Injunction
Section 524 of the Bankruptcy Code creates a permanent injunction against any act to collect a discharged debt as a personal liability of the debtor. The discharge injunction prohibits:
- Collection calls and letters
- Lawsuits to collect discharged debt
- Adverse credit reporting of the debt as currently owed
- Setoffs against the debtor's funds for discharged debt
A creditor may still enforce a valid lien against collateral (the discharge does not strip liens by itself), and a creditor may still collect on a non-discharged co-debtor. But the discharged debtor cannot be pursued personally.
Remedies for Discharge Violations
A creditor that willfully violates the discharge injunction can be held in contempt under Section 524 and Section 105. Sanctions can include actual damages, attorney's fees, and in egregious cases punitive damages. Common violations include continued collection efforts and inaccurate credit reporting of discharged debts.
Practical Takeaways
- List every debt you have, even debts you intend to pay or do not believe are dischargeable. Omitted debts in an asset case may not be discharged.
- Do not pay discharged debts – doing so is voluntary and undoes the protection of the discharge for that debt.
- Check your credit reports about 60 days after discharge and dispute any debts incorrectly reported as currently owed.
- Keep the discharge order. Send it to any collector who contacts you about a discharged debt.
Schedule a Consultation
To discuss which of your specific debts would be discharged in a Chapter 7 or Chapter 13 case, call 786-522-1411 or email [email protected].
About the Author
Albert Goodwin Esq. is a licensed Florida attorney whose practice focuses on bankruptcy, debt relief and foreclosure defense in Miami and across South Florida. He represents consumers and small businesses in Chapter 7, Chapter 13 and Chapter 11 cases in the U.S. Bankruptcy Court for the Southern District of Florida. He can be reached at 786-522-1411 or [email protected].
