Bankruptcy Discharge: Meaning, Overview, FAQ

What Is a Bankruptcy Discharge?

A bankruptcy discharge, also known as a discharge in bankruptcy or simply as a discharge, is a permanent court order that releases a debtor from liability for certain types of debts at the end of the bankruptcy process. After it is issued, creditors are not permitted to contact or pursue debtors for the outstanding debt.

How a Bankruptcy Discharge Works

A bankruptcy discharge provides relief to a debtor, as it means they are no longer legally required to pay back those debts. The subject of a bankruptcy discharge must meet certain requirements before it is granted, and the timing of the discharge varies based on the type of bankruptcy that they filed.

Chapter 7 bankruptcies, in which many of the debtor's assets will be sold off to pay their creditors, generally result in a discharge about four months after the bankruptcy petition is filed. Chapter 13 bankruptcies, in which debtors get to keep more of their assets but must agree to a plan to repay their debts over a period of three to five years, can bring a discharge at the end of that period.

An individual debtor under Chapter 7 bankruptcy is usually granted a discharge; however, the right to a discharge is not guaranteed. For instance, there may be pending litigation involving objections to the discharge.

The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the U.S. trustee, the trustee in the case, and, if one exists, the trustee's attorney. The debtor and the debtor's attorney also receive copies of the discharge order.

This notice is simply a copy of the final order of discharge and is not specific to the debts the court determines should not be covered by the discharge. The notice informs creditors that the debts owed to them have been discharged and they should not attempt any further collection.

The notice also cautions creditors that they may be subject to punishment if they continue collection efforts. Any failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order within the time required by the rules does not affect the validity of the order granting the discharge.

Which Debts Get Discharged in Bankruptcy and Which Don't?

Debts that are part of a Chapter 7 discharge include unsecured debts, collection agency accounts, medical bills, utility bills, dishonored checks, certain tax penalties, attorney fees, judgments from lawsuits, and any lease contracts the person may have.

Credit card debt is one of the most common types of debt to be discharged in bankruptcy. A discharge in bankruptcy order does not, however, discharge all debts. In fact, the federal courts (which handle bankruptcy cases) list 19 different types of debt that are not eligible for discharge. The most common ones are child support, alimony payments, and debts for willful and malicious injuries to a person or property.

For certain kinds of bankruptcies, condo fees, debts owed to some tax-advantaged retirement plans, debts from DUIs, and most student loans are also not discharged. And any debt not listed in the bankruptcy petition cannot be discharged. In addition, valid liens on specific property to secure payment of debts that have not been discharged will remain in effect after the discharge, and a secured creditor has the right to enforce the liens to recover such property.

Can Bankruptcy Discharge Be Denied?

In certain circumstances, courts can deny a discharge for all of a person's debts or for particular debts.

The court can deny a discharge in Chapter 7 for a number of reasons, including the debtor's failure to provide tax documents that have been requested, destruction or concealment of books or records, violation of a court order, a previous discharge in an earlier case that began within eight years before the date the second petition was filed, or failure to complete a course on personal financial management. In addition, a creditor, trustee in the case, or U.S. trustee may file an objection to the debtor's discharge.

In a Chapter 13 bankruptcy, a discharge may also be denied if the debtor doesn't complete a course on personal financial management or if they've gotten a prior discharge in another Chapter 13 case within two years before the filing of the second case, with a few exceptions. A court may even revoke a discharge under certain circumstances, such as allegations that the debtor obtained the discharge fraudulently or failed to provide documents or information requested in an audit of the case.

The Bottom Line

A bankruptcy discharge can provide an individual relief from some but not all of their debts. It can also shield the person from collection attempts by their creditors. However, bankruptcy has serious implications and should generally be avoided unless there are no other alternatives.