Understanding The Bankruptcy Discharge

How the Bankruptcy Discharge Works

The bankruptcy discharge is the most powerful tool available to debtors.  The bankruptcy discharge in essence is debt forgiveness and that forgiveness applies to mostly unsecured debts.

Let’s take a closer look at how the bankruptcy discharge works:

Debts Forgiven In Chapter 7 and Chapter 13 Bankruptcy

Many debtors don’t understand that debt discharge is available in both Chapter 7 bankruptcy and Chapter 13 bankruptcy . In Chapter 7 bankruptcy, the debtor probably hasn’t paid any of his/her unsecured creditors while in Chapter 13 bankruptcy the debtor may have spent several years repaying some unsecured creditors before receiving a bankruptcy discharge.  The essential difference is that a while a debtor in Chapter 13 bankruptcy is required to repay at least some of his/her unsecured creditors because they can afford to, there is no similar obligation for Chapter 7 bankruptcy debtors. However, Chapter 7 bankruptcy debtors with assets which exceed the bankruptcy exemption allowance may be required to liquidate some assets and distribute the proceeds to creditors. But liquidation of a debtor’s assets in Chapter 7 bankruptcy is rare and usually happens if the debtor is wealthy.

Nondischargeable Debts In Bankruptcy

There are certain debts which are impossible or difficult to discharge in bankruptcy.  Child support, recent taxes and any debts which have been accrued because of fraud or crime cannot be discharged in bankruptcy.  Student loans and some older taxes may be difficult to discharge without the help of an attorney.

Discharge Denial

Debtors can also face challenges to their bankruptcy discharge from creditors.  The most likely challenges will come from credit card companies and parties which have been “injured” by the debtor.  Parties challenging the bankruptcy discharge may accuse the debtor of anything from fraud or failing to honor a contract.  Debtors who fear their discharge could be challenged should speak with their bankruptcy attorney.