What Is the Definition of a Discharged Bankruptcy?
Following the successful resolution of a bankruptcy petition, the case is said to be discharged. However, the timing of a discharge differs according to the type of bankruptcy petition that is filed. In addition, filing for bankruptcy does not always relieve the debtor from all his financial obligations, even when the bankruptcy has been discharged.
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Identification
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In the bankruptcy process in the United States, a discharge results in the release of the debtor for further liability for debts that were included in the bankruptcy petition. The discharge prohibits the creditors involved from taking any further action to collect those debts, including telephone calls, mailings or lawsuits. Unless there is an objection that is sustained by the bankruptcy court, a discharge is automatic once a bankruptcy petition has been filed.
Chapter 7 Bankruptcy Discharge
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Chapter 7 bankruptcy petitions are designed for debtors who are seeking a general discharge of debt. A discharge of a Chapter 7 bankruptcy petition occurs immediately upon the the liquidation of the nonexempt assets of the debtor and the distribution of the proceeds to the creditors. Except for cases that are dismissed, often due to fraud, or that are converted by the bankruptcy court, individual debtors receive a discharge for 99 percent of Chapter 7 bankruptcy petitions.
A discharge of a Chapter 7 bankruptcy petition releases the debtor from any further financial or legal obligations to the creditors involved. Creditors often receive little or nothing, because individual debtors who are eligible for Chapter 7 bankruptcy have few assets other than personal and household effects, which are generally exempt from liquidation. -
Chapter 13 Bankruptcy Discharge
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Chapter 13 bankruptcy petitions are designed to allow a debtor to make reduced payments to satisfy debts while retaining the bulk of her personal property, such as a house. With a Chapter 13 bankruptcy petition, the total repayment obligation of the debtor is reduced by the court, and the debtor is allowed to set up an installment plan to repay the debt obligations that remain. Discharge of a Chapter 13 petition occurs upon the completion of the payment plan set up with the bankruptcy court, which often occurs long after the actual court hearing.
Chapter 11 Discharge
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Chapter 11 bankruptcy petitions are often referred to as a "reorganization" plan. Chapter 11 is often used to provide debt relief to allow a business entity to remain in operation. In the case of a corporation, a Chapter 11 bankruptcy filing does not jeopardize the personal assets of the individual filer. However, in a partnership or a sole proprietorship, the assets of the business and the individual(s) may be exposed.
A discharge of a Chapter 11 bankruptcy petition results when the business entity has successfully "emerged" from reorganization or has reached a satisfactory agreement with affected creditors and the agreement has been accepted by the bankruptcy court. A discharge also may result after the nonexempt assets of the business entity have been liquidated, or sold to satisfy the debts of the business. In the case of liquidation, the business ceases to exist as a legal entity.
Debts That Cannot Be Discharged
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Even with the successful discharge of a bankruptcy petition, there are a number of debts for which the debtor may still be held legally and financially accountable. Generally, student loans, child support payments and most income tax payments cannot be discharged by a bankruptcy petition. Additionally, secured debts or debts for which a creditor has previously obtained a lien generally are not discharged by a bankruptcy petition. Also, creditors may file petitions to have specific debts excluded from a discharge, such as debts obtained by fraudulent information submitted by the debtor.
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