The basics of a bankruptcy discharge for individuals

Many Arizona residents have a familiarity with bankruptcy and discharge insofar as the terms themselves are concerned. Debt relief through the United States Bankruptcy Court, many believe, means a judge determines you don't have to pay your bills because of an unavoidable, negative life circumstance. While this is basically the way it works, timing and a myriad of circumstances, procedures and qualifications can make a difference in the outcome of a bankruptcy case.

A discharge releases a debtor from personal liability for specific debts. It's important to note, however, a discharge may not apply to some bills or obligations. A Chapter 7 debtor doesn't have an absolute right to discharge. Objections may be filed by creditors or the U.S. Trustee appointed to handle the case. A valid lien on property to secure payment of a debt, such as a vehicle loan or mortgage on a house, that was made unenforceable for some reason in the bankruptcy case remains in place after a discharge. In other words, a secured creditor may enforce the lien to recover whatever property was secured under the loan.

A discharge happens at different times for different types of bankruptcy. A Chapter 7 liquidation discharge is usually granted when the time for creditors to act on a bankruptcy expires. Generally, this is 60 days after the first date set for the meeting of creditors, about four months after the petition is filed. Because a Chapter 13 bankruptcy involves a payment plan to creditors that can span four to five years on average, a discharge would be ruled after the debtor finishes making payments.

Unless the trustee has unresolved issues or a lawsuit was filed by a creditor or other party objecting to the bankruptcy, the discharge is received automatically. The clerk of the bankruptcy court mails a copy of the official document to all creditors, the trustee, attorneys and the debtor or debtors. The notice also contains language directed at creditors stating they could be subject to contempt charges if they attempt to collect any of the discharged debts.

Source: United States Courts, "Bankruptcy Basics," accessed June 17, 2015

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