Debt Discharge in Chapter 7 Bankruptcy

October 30, 2012

Chapter 7 bankruptcy is also called "liquidation bankruptcy" because the trustee in the case liquidates all of the filer's non-exempt assets to pay off the creditors in the case. In many cases, the filer has few -- or no -- non-exempt assets, so very little money ends up going to creditors.

Without the protections that filing bankruptcyoffers, particularly the debt discharge, many would not be able to make it and get out of debt. Bankruptcy can give people the opportunity to make a fresh start, which they otherwise would not have. People considering bankruptcy should understand what the debt discharge is, what debts can be discharged and how debts get discharged in bankruptcy.

What Is a Debt Discharge?

One of the main benefits that bankruptcy offers to people struggling financially is the debt discharge. At the end of the bankruptcy process, after the court approves the petition, a judge issues an order releasing the individual from personal liability on his or her debts.

The order prohibits creditors from contacting him or her about the debts or making any attempts to collect, such as obtaining judgments.

What Debts Get Discharged?

Not all debts get discharged in bankruptcy. The most common types of debt that get discharged are unsecured debts, which are debts with no property used as collateral, such as credit card debt and medical bills.

The Bankruptcy Code contains a comprehensive list of the types of debt that bankruptcy does not discharge. Some of the most common examples include:
-Tax debt
-Past-due child support or alimony
-Student loans
-Money owed for damage caused by operating a vehicle while intoxicated
-Money owed for damage caused by willful or malicious behavior
-Money owed on loans from some tax-advantaged retirement plans


How Do Debts Get Discharged?

Unless there is litigation surrounding the bankruptcy case, the court automatically issues the discharge at the conclusion of the case. The court clerk mails a copy of the order to all of the creditors listed in the petition, as well as the filer.

Talk to a Lawyer

Those who are facing financial crises and overwhelmed by debt may feel like they have no options and will never get out of debt. However, a seasoned bankruptcy attorney can provide them with valuable advice about debt relief solutions.

Article provided by Carmichael & Powell, P.C.
Visit us at http://www.cplawfirm.com