Recent questions by a client and a motion in one of our cases has led to some talk about the Discharge in a Chapter 7 Bankruptcy. The Discharge is the whole point of the Bankruptcy process, and any questions should be referred to an attorney. Most debts are discharged, but there are some exceptions. This post is going to briefly explain the discharge, its nature, and its limits.
Upon completion of your Chapter 7 Bankruptcy the court issues an order erasing your debts. This is the Discharge. In technical terms the Discharge is a permanent injunction that prohibits collection of debts by any of your creditors. Creditors are ordered not to contact you, to file a lawsuit concerning the debt, to garnish wages, or to otherwise collect on the debt against you. Actions prohibited include phone calls, reporting to the credit bureaus, and selling the debt to collectors. The Discharge is intended to allow you to have a new financial start.
However, as I pointed out in an earlier post, some aspects of some debts are not discharged. If you own a house or a car then the creditor still has the right to take the house or the car if you fall behind. Specifically, in the case of Illinois mortgages, a mortgage can be discharged, and then if you miss payments then the mortgage company can sue the homeowner for the deed to the property, which is called an in-rem foreclosure. You might not owe any money, but you still should make the payments if you want to keep your home.
Some debts are not discharged at all. The Bankruptcy code provides that the following debts are not discharged:
- Most taxes (and tax loans)
- Domestic Support Obligations
- Student Loans
- 401(k) loans
- Criminal Fines, tickets, tollway fines, DUI related penalties or judgments
Additionally, the Bankruptcy Court can hold hearings on certain debts, or even certain portions of debts, and determine if they are discharged or not. Sometimes the court will decide that it would be unjust to eliminate a debt, and then the court will issue an order exempting the debt from the discharge. This can happen with fraudulent debts, or new debts. One of our skilled bankruptcy attorneys can determine ahead of time if that is an issue for you.
Finally, many clients are concerned that they may have missed a debt when they file their case. Fortunately the courts have provided coverage for debts which are missed because of accident or oversight. The Bankruptcy Courts insist that when you file you make a good effort to include all of your debts. But if, through no fault of your own, a debt is missed from your list of creditors then that debt is still discharged. An attorney can send a letter to the creditor, informing them of the bankruptcy and from that time on the Discharge applies to that debt.
Remember, this is only a summary of the Discharge. The laws are actually very complex, and advice from an attorney is recommended. If you are a debtor and you want to file Bankruptcy, Urban & Burt can determine if your debts can be discharged. Additionally, if you are a creditor, and you think you have a debt that might be not discharged, we can review the situation and help you preserve your debt. Our firm is experienced in debtors rights and creditors rights and can help you.