Discharge is often the last thing a bankruptcy client sees or thinks about their case, but it is not the end of the bankruptcy case. This is often a confusing aspect for clients. We’ll explain here and try to simplify the two and explain what the distinctions are.
11 United States Code § 101 is often helpful in defining terms in the bankruptcy context. This section is the “Definitions” section of the Bankruptcy Code. Regretfully, the terms “discharge” and “closure” are not set forth in the definitions section. So what do they mean in the day to day lives of those who choose to file for bankruptcy relief?
On the United States Courts' website the answer to the question “What is a discharge in bankruptcy? is answered this way:
“A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.
Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.”
Its important to note that the discharge relates to debts. The discharge does not relate to the “discharge” or “termination of authority” of a bankruptcy trustee. In this manner, people who have gone through a bankruptcy are often surprised when they have received their “discharge” order, but then receive a demand letter from their bankruptcy trustee. We sometimes have requests from clients to sell assets after discharge, but before case closure. This is inappropriate without court approval.
The bankruptcy is considered by credit reporting agencies, by lenders, and by the court to be active or “open” until the case is closed by the court. In the case of a discharge order, a copy is sent by the Bankruptcy Noticing Center to all creditors and parties in interest. In the case of a case closure, there is simply an annotation made to the court docket that the case is closed. A case closure divests the trustee from authority or responsibility for the case and typically operates as an abandonment of any scheduled, disclosed property that the bankruptcy trustee has not administered. If you want to know if your case has been closed or not, you’ll have to have your attorney look at the court docket.
When dealing with a bankruptcy and a bankruptcy trustee, it is important for the debtor to understand that a “discharge” does not give the debtor a right to ignore the trustee. All requests of a trustee must be addressed until case closure. The debtor will not hear from the case trustee after case closure unless a fraud is discovered.
Bankruptcies are typically reported on your credit report for up to ten years. The credit report will typically show when the bankruptcy was filed, what debts are discharged, and when the case is discharged. Credit reports typically do not show the case closure date.