The entire purpose of most chapters of bankruptcy is to obtain a discharge of debt. However, what, exactly, does that mean? In short, it means that the debtor (the person who owes money) is
released from all personal liability (responsibility) for certain types of debt. Basically, the person who files bankruptcy no longer has to pay discharged debts.
At the end of a bankruptcy, the court will issue an Order discharging the debtor’s debts. This is a permanent order prohibiting creditors from taking any form of collection action on discharged debts, including filing lawsuits, sending bills, or calling the debtor. This also means that your credit report has to be updated an creditors must properly report the status of the debt.
What debts are discharged?
A common question is, “What debts are discharged?” The answer is that it depends.
11 U.S.C. §523 lists a number of “exceptions” to discharge, and include recent income taxes, domestic support obligations and drunk driving judgments. Some debts are dischargeable unless a creditor files a lawsuit within the bankruptcy (called an Adversary Proceeding) and proves that the debtor owes money because of his bad behavior, such as debts incurred by fraud, misrepresentation, breach of fiduciary duty, theft or willful and malicious injury.
Student Loans are a special case and are only dischargeable only if the debtor files an Adversary Proceeding proving that repaying the debt imposes an undue hardship on the debtor.
It is also possible that discharge can be denied completely if the person filing does something wrong, including lying on the petition, destroying records or hindering the Trustee.
Remember, a discharge releases a person’s personal liability — that means that that person (as a person) is not responsible for paying the debt. However, to the extent that a debt is secured, the lien on the property securing the debt may survive a bankruptcy, depending on the type of bankruptcy filed. Certain types of debt (primarily car loans) may necessitate that you sign a reaffirmation agreement for you to retain possession of the underlying property. If you have questions about what debts are discharged, your bankruptcy attorney should be able to provide you with clear answers.