While every Chapter 7 and 13 bankruptcy case ends with a bankruptcy discharge, not all kinds of debt may end up in bankruptcy discharges. Knowing ahead of time which debts the court may or may not be discharged can help you avoid a major disappointment and prepare for what’s to come. This article discusses which debts can be wiped off and which debts you will still need to pay back to your creditors.
A discharge notice is a court order which legally declares that you no longer have any obligation to pay back certain debts after your bankruptcy case. This legal document is the “light at the end of the tunnel” sought by every Chapter 7 and Chapter 13 bankruptcy filer.
Dischargeability of Debts
However, certain obligations are not allowed to be wiped out. These include government-mandated loans and fees such as child support, alimony or spousal support, car and home mortgages, taxes, homeowner’s association dues, debt due to fraudulent activity and criminal convictions, DUI or DWI related loans, student loans, and nondischargeable debts remaining from your previous bankruptcy application.
The bankruptcy court, when making its decision, shall assess your financial situation and determine whether or not to remove your obligation to pay back the following dischargeable loans: credit cards, medical bills, and nursing expenses, personal and business loans, utility bills, lawsuit judgments, mortgage payments (past due), tax penalties, and other unsecured debts.
If the government has a lien on your property, you will still be required to pay property taxes before you can remove the debt. There are special exemptions where a borrower can have his tax debts removed such as: when the taxes are from income tax; if it had been due for three years before your case was filed; if you have a record of filing taxes on time and there was no intent for tax evasion, and all your tax return statements are clean (no evidence of fraud).
Chapter 7 vs. Chapter 13 Discharge
The timing of the release of the discharge notice will depend on which type of bankruptcy you applied for. If you file bankruptcy under Chapter 13, then the discharge notice will only be given after you are done fulfilling the new repayment plan agreed upon by you, your lenders, and the bankruptcy judge. Since Chapter 13 bankruptcies allow filers to catch up on their payments within three to five years, the discharge can happen after the payment period is over.
On the other hand, debts can be discharged in just a few months when you declare bankruptcy under Chapter 7. Of course, you will need to satisfy the eligibility requirements for filing. If you are not familiar with the qualifications, then a licensed bankruptcy attorney near you can help you determine which bankruptcy type suits you. Choosing this option when filing bankruptcy means you agree to have a bankruptcy trustee handle your properties and sell your assets to pay back your creditors.
Bankruptcy Dismissal and Discharge Denial
Bankruptcy discharges are different from bankruptcy dismissal. You would not want to get the latter, because dismissals mean the debtors still owe their debts. Your case can be dismissed if you fail to provide your monthly payments (Chapter 13 debtors) or if you don’t have enough assets to liquidate (Chapter 7 borrowers). There are other potential reasons for the court to dismiss a case, such as failing to attend your credit counseling course, having an income above your state’s median income, or evidence that you committed bankruptcy fraud, and that you don’t intend to repay your loans.
In certain cases, your case may not have been dismissed but your bankruptcy discharge gets denied. Even if you’re bankruptcy petition went through, bankruptcy courts may, later on, decide to deny you a discharge if they found evidence of any of the following:
- Disobedience to court orders
- Misinformation and misrepresentation in your bankruptcy documents
- Defrauding creditors through asset transfers
- Facing perjury charges during your bankruptcy proceedings
- Non-attendance in credit counseling sessions
Getting the Discharge Notice
Once your debts have been wiped clean, you will receive a copy of the document and your lenders will also be notified about the bankruptcy order. As soon as this is released, no creditor, lending company, or agency can go after any debt listed in the notice. If they continue calling you, you can even sue a lender for contempt.
In a discharge, creditors also lose the right to file a lawsuit against you for failing to pay your dues. You also don’t need to worry about taxes because discharged debts are not taxed by the IRS.
However, you should prepare to see the discharged debt on your credit report. Moreover, while contractors can’t reach out to you about a dischargeable debt, they may still take actions to repossess your item or property especially when there is a secured lien on it.
If you’re worried about losing your home or valuable possession, speak with a bankruptcy attorney right away to prevent foreclosures and repossessions. Our compassionate bankruptcy attorneys from Northwest Debt Relief Law Firm are dedicated to helping you overcome obstacles and achieve financial success.
At The Northwest Debt Relief Law Firm, we believe that getting you out of debt involves more than filing your bankruptcy case. That’s why we offer every client a complete package, which includes a free initial consultation with an experienced bankruptcy lawyer, free collection letter review, flexible payment plans, unlimited phone calls and emails, complete court representation, and many more! Call us now and let us get started on your journey to debt relief.