Chapter 7 Discharge Information
Applicable to Washington DC and Maryland
Discharge is a term meaning that most of the debtor’s unsecured debts are forgiven through the bankruptcy process. Once a debt has been discharged, the debtor is no longer personally liable for repaying that debt. A common misconception is that bankruptcy eliminates all of your debt. However, this is not true – some forms of debt, including student loans, tax debt, and any fraudulent debts, are not dischargeable in bankruptcy. Because of this, it is important that you have an experienced Chapter 7 bankruptcy lawyer to explain the process and to give you Chapter 7 discharge information that applies to your situation.
Prerequisites for Chapter 7 Bankruptcy Discharge
To obtain a discharge of debts, the debtor may not have had his debts discharged within the past eight years. The debtor must also complete a personal financial management class pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Additionally, creditors and the trustee have sixty days after the creditor’s meeting to challenge the debtor’s right to discharge. A court may refuse discharge if the debtor did not produce financial records, failed to explain a loss of assets, committed perjury during the meeting of the creditors, fraudulently conveyed property, did not complete the required financial management course, or failed to comply with any other court order. If no such challenges are made and you meet all the other prerequisites, the court discharges the debt within four to six months of filing the petition.
Effect of a Chapter 7 Discharge
Once a debt has been discharged, the creditor may no longer initiate or continue any legal action against the debtor to collect repayment of the debt. Additionally, a creditor cannot send letters or make telephone calls to collect the debt. However, a Chapter 7 bankruptcy discharge does not automatically discharge the liability of a co-debtor or guarantor. Additionally, a bankruptcy discharge does not affect existing liens on the debtor’s personal or real property.
Secured Debts: If a debtor wishes to retain property obtained pursuant to a secured loan, he may reaffirm a debt and keep the property. However, the secured creditor retains the right to seize the property if the debtor fails to make payments in accordance with the written reaffirmation agreement. A bankruptcy proceeding does not discharge this right.
Student Loans: Federal student loans are not usually dischargeable by Chapter 7 bankruptcy. You can only discharge such loans if paying the loans creates an undue hardship on the debtor. To demonstrate hardship, the debtor must prove that he was unable to make payments at the time of the bankruptcy filing and that he will be unable to do so in the future. Courts often apply a standard test to determine eligibility for the discharge of student loans:
- Income: the debtor’s current income is insufficient to repay the student loan while maintaining a minimum standard of living for himself and his dependents
- Duration: the debtor’s current income situation will continue for a significant portion of the repayment period
- Good faith: the debtor has made a good faith effort to repay the loan
To have such debt discharged, the debtor must apply for a hardship discharge prior to the discharge of other debts and must pay the applicable fees for discharging a student loan.
Other Non-Dischargeable Debts: There are some debts that are automatically non-dischargeable in Chapter 7 bankruptcy. Such debts include:
- Federal, state, and local tax deficiencies from the previous three years
- Criminal restitution
- Child support payments
- Alimony support payments
- Court fees
- Government-imposed restitution, fines, and penalties
- Debts not dischargeable in a previous bankruptcy proceeding due to the debtor’s fraud
Additionally, if a creditor objects to the discharge, the following debts are also non-dischargeable:
- Fraudulent debts, including debts for luxury goods or services incurred within 90 days before filing
- Debts arising from embezzlement, larceny, or a break of fiduciary duty
- Divorce settlement payments, provided the debtor is able to pay and the detriment to the recipient would be greater than the benefit to the debtor
- Debts arising from willful and malicious acts
However, to prevent the discharge of these debts, the creditor has the burden of proving that the debt falls into one of these categories.
Revocation of a Chapter 7 Bankruptcy Discharge
The bankruptcy trustee or a creditor may request the revocation of a Chapter 7 discharge. Such a revocation will be granted where the debtor:
- Obtained the discharge through fraudulent means
- Acquired property and knowingly failed to report it to the court
- Made a material misstatement or failed to provide information in connection with an audit of his case
Generally, such revocations are rare and only occur if the debtor committed fraud or otherwise hindered bankruptcy proceedings.
Conclusion to Chapter 7 Discharge
If you are facing bankruptcy proceedings and have questions about the discharge process or Chapter 7 bankruptcy process, take advantage of the free consultation that our Chapter 7 attorney offers to you. Kevin D. Judd has experience with numerous Maryland and Washington DC bankruptcy proceedings. Please contact him now to set up your free consultation.