What is a discharge in bankruptcy?

A bankruptcy discharge releases the debtor from personal liability for certain
specified types of debts. In other words, the debtor is no longer legally required to
pay any debts that are discharged. The discharge is a permanent order prohibiting
the creditors of the debtor from taking any form of collection action on discharged
debts, including legal action and communications with the debtor, such as
telephone calls, letters, and personal contacts.

Although a debtor is not personally liable for discharged debts, a valid lien upon
specific property to secure payment of a debt that has not been avoided (made
unenforceable) in the bankruptcy case will remain after the bankruptcy case.
Therefore, a secured creditor may enforce the lien to recover the property secured
by the lien.

When does the discharge occur?

The timing of the discharge varies, depending on the chapter under which the case
is filed. In a Chapter 7 (liquidation) case, for example, the court usually grants the
discharge promptly on expiration of the time fixed for filing a complaint objecting to
discharge and the time fixed for filing a motion to dismiss the case for substantial
abuse (usually within 60 days following the first date set for the 341 meeting).  In
individual Chapter 11 cases, and in cases under Chapter 12 (adjustment of debts
of a family farmer or fisherman) and 13 (adjustment of debts of an individual with
regular income), the court generally grants the discharge as soon as practical, after
the debtor completes all payments under the plan. Since a Chapter 12 or Chapter
13 plan may provide for payments to be made over three to five years, the
discharge typically occurs about four years after the date of filing. The court may
deny an individual debtor's discharge in a Chapter 7 or 13 case if the debtor fails to
complete "an instructional course concerning financial management." The
Bankruptcy Code provides limited exceptions to the "financial management"
requirement if the US Trustee or Bankruptcy Administrator determines there are
inadequate educational programs available, or if the debtor is disabled or
incapacitated or on active military duty in a combat zone.

How does the debtor get a discharge?

Unless there is litigation involving objections to the discharge, the debtor will usually
automatically receive a discharge from the court. The Federal Rules of Bankruptcy
Procedure provide for the clerk of the bankruptcy court to mail a copy of the order
of discharge to all creditors, the US Trustee, the Trustee in the case, and the
Trustee's attorney, if any. The debtor and the debtor's attorney also receive copies
of the discharge order. The notice, which is simply a copy of the final order of
discharge, is not specific as to those debts determined by the court to be
non-dischargeable (not covered by the discharge). The notice informs creditors
generally that the debts owed to them have been discharged and that they should
not attempt any further collection. They are cautioned in the notice that continuing
collection efforts could subject them to punishment for contempt. Any inadvertent
failure on the part of the clerk to send the debtor or any creditor a copy of the
discharge order promptly within the time required by the rules does not affect the
validity of the order granting the discharge.

Are all of the debtor's debts discharged or only some?

Not all debts are discharged. The debts discharged vary under each chapter of the
Bankruptcy Code.  Section 523(a) of the Code specifically excepts various
categories of debts from the discharge granted to individual debtors. Therefore, the
debtor must still repay those debts after bankruptcy.  Congress has determined that
these types of debts are not dischargeable for public policy reasons (based either
on the nature of the debt or the fact that the debts were incurred due to improper
behavior of the debtor, such as the debtor's drunken driving).

There are 19 categories of debt excepted from discharge under Chapters 7, 11,
and 12.  A more limited list of exceptions applies to cases under Chapter 13.

Generally speaking, the exceptions to discharge apply automatically if the language
prescribed by section 523(a) applies. The most common types of nondischargeable
debts are certain types of tax claims, debts not set forth by the debtor on the lists
and schedules the debtor must file with the court, debts for spousal or child support
or alimony, debts for willful and malicious injuries to person or property, debts to
governmental units for fines and penalties, debts for most government funded or
guaranteed educational loans, debts for personal injury caused by the debtor's
operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged
retirement plans, and debts for certain condominium or cooperative housing fees.

The types of debts described in sections 523(a)(2), (4) and(6) (obligations affected
by fraud or maliciousness) are not automatically excepted from discharge. Creditors
must ask the court to determine that these debts are excepted from discharge.  In
the absence of an affirmative request by the creditor and the granting of the
request by the court, the types of debts set out in sections 523(a)(2), (4) and (6)
will be discharged.

A slightly broader discharge of debts is available to a debtor in a Chapter 13 case
than in a Chapter 7 case. Debts dischargeable in a Chapter 13, but not in chapter
7, include debts for willful and malicious injury to property, debts incurred to pay
non-dischargeable tax obligations, and debts arising from property settlements in
divorce or separation proceedings. Although a Chapter 13 debtor generally
receives a discharge only after completing all payments required by the
court-approved ("confirmed") repayment plan, there are some limited circumstances
under which the debtor may request the court to grant a "hardship discharge" even
though the debtor has failed to complete plan payments. Such a discharge is
available only to a debtor whose failure to complete plan payments is due to
circumstances beyond the debtor's control. The scope of a Chapter 13 "hardship
discharge" is similar to that in a Chapter 7 case with regard to the types of debts
that are excepted from the discharge. A hardship discharge also is available in
Chapter 12 if the failure to complete plan payments is due to "circumstances for
which the debtor should not justly be held accountable."

Does the debtor have the right to a discharge or can creditors object to
the discharge?

In Chapter 7 cases, the debtor does not have an absolute right to a discharge. An
objection to the debtor's discharge may be filed by a creditor, by the trustee in the
case, or by the US Trustee.  Creditors receive a notice shortly after the case is filed
that sets forth much important information, including the deadline for objecting to
the discharge. To object to the debtor's discharge, a creditor must file a complaint
in the bankruptcy court before the deadline set out in the notice. Filing a complaint
starts a lawsuit referred to in bankruptcy as an "adversary proceeding."

The court may deny a Chapter 7 discharge for any of the reasons described in
section 727(a) of the Bankruptcy Code, including failure to provide requested tax
documents; failure to complete a course on personal financial management;
transfer or concealment of property with intent to hinder, delay, or defraud
creditors; destruction or concealment of books or records; perjury and other
fraudulent acts; failure to account for the loss of assets; violation of a court order or
an earlier discharge in an earlier case commenced within certain time frames
(discussed below) before the date the petition was filed. If the issue of the debtor's
right to a discharge goes to trial, the objecting party has the burden of proving all
the facts essential to the objection.

In Chapter 12 and Chapter 13 cases, the debtor is usually entitled to a discharge
upon completion of all payments under the plan. As in Chapter 7, however,
discharge may not occur in Chapter 13 if the debtor fails to complete a required
course on personal financial management.  A debtor is also ineligible for a
discharge in Chapter 13 if he or she received a prior discharge in another case
commenced within time frames discussed the next paragraph. Unlike Chapter 7,
creditors do not have standing to object to the discharge of a Chapter 12 or
Chapter 13 debtor.  Creditors can object to confirmation of the repayment plan, but
cannot object to the discharge if the debtor has completed making plan payments.

Can a debtor receive a second discharge in a later Chapter 7 case?

The court will deny a discharge in a later Chapter 7 case if the debtor received a
discharge under Chapter 7 or Chapter 11 in a case filed within eight years before
the second petition is filed. The court will also deny a Chapter 7 discharge if the
debtor previously received a discharge in a Chapter 12 or Chapter 13 case filed
within six years before the date of the filing of the second case unless:

1) the debtor paid all "allowed unsecured" claims in the earlier case in full, or

2) the debtor made payments under the plan in the earlier case totaling at least 70
percent of the allowed unsecured claims and the debtor's plan was proposed in
good faith and the payments represented the debtor's best effort.

A debtor is ineligible for discharge under Chapter 13 if he or she received a prior
discharge in a Chapter 7, 11, or 12 case filed four years before the current case or
in a Chapter 13 case filed two years before the current case.

Can the discharge be revoked?

The court may revoke a discharge under certain circumstances. For example, a
trustee, creditor, or the US Trustee may request that the court revoke the debtor's
discharge in a Chapter 7 case based on allegations that the debtor:

A)  Obtained the discharge fraudulently.

B)  Failed to disclose the fact that he or she acquired or became entitled to acquire
property that would constitute property of the bankruptcy estate.

C)  Committed one of several acts of impropriety described in section 727(a)(6) of
the Bankruptcy Code.

D)  Failed to explain any misstatements discovered in an audit of the case or fails to
provide documents or information requested in an audit of the case.

Typically, a request to revoke the debtor's discharge must be filed within one year
of the discharge or, in some cases, before the date that the case is closed. The
court will decide whether such allegations are true and, if so, whether to revoke the

In a Chapter 11, 12 and 13 cases, if confirmation of a plan or the discharge is
obtained through fraud, the court can revoke the order of confirmation or discharge.

May the debtor pay a discharged debt after the bankruptcy case has been

A debtor who has received a discharge may voluntarily repay any discharged debt.
A debtor may repay a discharged debt even though it can no longer be legally
enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family
member or because it represents an obligation to an individual for whom the
debtor's reputation is important, such as a family doctor.

What can the debtor do if a creditor attempts to collect a discharged debt
after the case is concluded?

If a creditor attempts collection efforts on a discharged debt, the debtor can file a
motion with the court, reporting the action and asking that the case be reopened to
address the matter.  The bankruptcy court will often do so to ensure that the
discharge is not violated. The discharge constitutes a permanent statutory
injunction prohibiting creditors from taking any action, including the filing of a
lawsuit, designed to collect a discharged debt.  A creditor can be sanctioned by the
court for violating the discharge injunction.  The normal sanction for violating the
discharge injunction is civil contempt, which is often punishable by a fine.

May an employer terminate a debtor's employment solely because the
person was a debtor or failed to pay a discharged debt?

The law provides express prohibitions against discriminatory treatment of debtors
by both governmental units and private employers. A governmental unit or private
employer may not discriminate against a person solely because the person was a
debtor, was insolvent before or during the case, or has not paid a debt that was
discharged in the case. The law prohibits the following forms of governmental

1)  Terminating an employee.

2)  Discriminating with respect to hiring.

3)  Denying, revoking, suspending, or declining to renew a license, franchise, or
similar privilege.

4)  A private employer may not discriminate with respect to employment if the
discrimination is based solely upon the bankruptcy filing.
For additional information, subscribers may review the materials located in our
Advanced Bankruptcy Section.

Business Bankruptcy