Bankruptcy and Your Debt

Bankruptcy is a way to eliminate many of your debts, but you must consult your attorney to get help. Understanding what happens to debt during bankruptcy can help filers determine whether bankruptcy-and which type-is right for them.

 

A Word about Student Loans

Student loans cannot typically be discharged as a part of a bankruptcy filing except under extreme circumstances. You have to be nearly indigent, with almost no chance of ever working. In most circumstances, you attorney will encourage you to take the money you will be saving after discharging your other debt and to pay it on your student loans.

 

The Bankruptcy Discharge

A bankruptcy discharge refers to the release of liability to repay debts that one who has completed the bankruptcy receives when a bankruptcy case has concluded. A discharge indicates that the debts included as part of the bankruptcy filing are considered satisfied and that creditors can no longer take action to collect all or part of the original debt from that individual. A bankruptcy discharge is sent to everyone involved in the case, including the petitioner, the attorneys, the trustee, and all of the creditors. The discharge advises the creditors that the debts owed to them have been discharged and that they are not permitted to take any further action against the debtor concerning the discharged debts. However, the bankruptcy discharge does not generally list the specific debts that have been discharged.

 

The bankruptcy discharge occurs at different times, depending on the type of bankruptcy filed. In the case of a Chapter 13 bankruptcy filing, the discharge generally occurs as soon as possible after the individual has completed the repayment plan. Therefore, the discharge will occur after three to five years, depending on the length of the repayment plan. In the case of a Chapter 7 filing, the discharge generally occurs about sixty days after the first scheduled creditor's meeting and approximately four months after the petition was originally filed.

 

Although most discharges occur automatically, a debtor will not receive a discharge until he or she has completed an approved financial management course. Therefore, petitioners are advised to complete this requirement within the time frame expected so that the discharge is not delayed. A discharge can also be denied or revoked if the debtor has been found to have hidden assets or information that would have changed the outcome of the case. Creditors can object to a discharge only in a Chapter 7 bankruptcy case. A debtor should not assume that all debts have been discharged because debts such as student loans, family law debts like alimony and child support, certain federal taxes and fees, and some other types of debt might not be automatically discharged. Chapter 13 allows for the discharge of some debts that Chapter 7 does not. Extra copies of a discharge order can be obtained through the courts for a fee or through new online systems that many courts have or are implementing.

 

The Hardship Discharge

If, during the course of the bankruptcy case, one of the debtors dies or becomes ill or permanently disabled, the attorney can petition the court for a hardship discharge. This informs the court that something catastrophic has happened to the debtors and requests that the court to discharge the remaining debt.