A discharge is a permanent order that prohibits and prevents creditors from collecting on specific debts. A discharge also prohibits creditors from communicating with debtors regarding the discharged debt. A bankruptcy discharge releases the debtor from certain specific debts known as dischargeable debts. The effect of a discharge, is that it frees the debtor from the debts he or she incurred before the bankruptcy order. Once discharged the debtor is not liable for the discharged obligations.
After a bankruptcy discharge, if the creditor attempts to collect a discharged debt, the debtor can report the action to the court and file a motion requesting the court to reopen the case in order to address the issue. If the bankruptcy court finds that the creditor has violated the discharge injunction, the creditor can be sanctioned. Normally, in such cases the creditor will be punished with fines.
Generally, individuals and businesses file for bankruptcy under Chapter 7, the most common form of bankruptcy also known as “straight bankruptcy.” However, a discharge of debt under Chapter 7 applies only to individuals. Under Chapter 7, the court usually grants discharge on the expiry of the time fixed for filing complaints objecting to the discharge and time fixed for filing motions to dismiss for substantial abuse, i.e., 60 days from the first date set for the section 341 meeting.
The court may also deny a discharge to the debtor under Chapter 7 for reasons listed below:
- failure to provide necessary tax documents;
- failure to complete a course on personal financial management;
- transfer or concealment of property with an intention to defraud the creditors;
- concealment of necessary records;
- perjury and other bankruptcy crime;
- failure to account loss of assets; and
- violation of court order or an earlier discharge.
Nevertheless, it is the objecting party’s burden to prove all the facts relevant to the objection. The rules relating to discharge are covered under 11 USCS § 727.
All debts are not dischargeable. The dischargeable debts under Chapter 7 include:
- Personal loans
- Credit cards
- Auto accident claims
- Medical bills
- Business debts
- Repossession deficiencies
- 3 years old tax penalties
- Negligence claims.
Non-dischargeable debts include the following:
1. Family and child maintenance and support obligations;
2. Certain taxes;
3. Criminal fines or restitution;
4. Accident claims involving intoxication from alcohol or other substances;
5. Student loans; and
6. Debts for willful and malicious injury inflicted by the debtor.