WHAT IS A 'Discharge In Bankruptcy'

Discharge in bankruptcy refers to an order that releases the debtor from personal liability for certain specified types of debts, thereby releasing the debtor from any legal obligation to pay any discharged debts. 

BREAKING DOWN 'Discharge In Bankruptcy'

Discharge in bankruptcy is a permanent order that also prohibits creditors from taking any form of collection action on the discharged debts. However, 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.

A discharge in bankruptcy order does not discharge all debts. In fact, there are 19 types of debt that are exempted from discharge for bankruptcy filings under chapters 7, 11 and 12, with a more limited list of exceptions applicable for chapter 13 filings.

The timing of the discharge also varies, depending on the chapter under which the debtor files for bankruptcy. In individual cases under chapters 11, 12 or 13, the court typically grants the discharge as soon as possible after the debtor completes all payments under the plan.

How a Debtor Gets a Discharge

The debtor will typically automatically receive a discharge upon applying unless there is 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 the trustee's attorney, if one exists. The debtor and the debtor's attorney also receive copies of the discharge order. The notice is simply a copy of the final order of discharge, and is not specific to the debts determined by the court to not be covered by the discharge. The notice informs creditors that the debts owed to them have been discharged, and that they should not attempt any further collection. The notice also cautions that continuing collection efforts could subject them to punishment for contempt. Any failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge.

The most common types of nondischargeable debts are debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property and debts owed to certain tax-advantaged retirement plans.

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