Articles Posted in Bankruptcy Discharge

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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:

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These are the types of debts that are discharged in a chapter 13 bankruptcy that are NOT dischargeable in a chapter 7 bankruptcy:

1. Debts that weren’t or couldn’t be discharged in a previous case.

2. Court Fees

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Many assume that all debts are paid back in a chapter 13 bankruptcy. The reality is that most chapter 13 bankruptcy filers don’t pay very much of the dischargeable debt back. Most of it is wiped away at the end of the case.

The common follow up question is then…what type of debt is not dischargeable in a chapter 13 plan. Here is the list:

1. Criminal Penalties – Fines or Restitution resulting from a criminal conviction can’t be discharged.

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If someone “co-signs” a contract in order to help a friend or family member get a loan, that co-signer is legally liable to pay the debt and his or her credit report will reflect that.

What if the borrower files for bankruptcy? A few important points:

1. The cosigner is considered a codebtor both inside and outside of bankruptcy.

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The typical consumer files a bankruptcy case in order to obtain a “discharge” of overwhelming debt. An unfortunate word that is used to describe what for many is a life changing “event”. Why?

When a debt is “discharged”, the obligation of the debtor to pay it, no longer exists. The obligation is simply gone…poof. It is government intervention in the realm of private contract relationship at it’s “finest”, and with some careful planning and preparation, it works like a charm.

Having said that, this powerful discharge has it’s limits.

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Debts owed to payday lenders can be wiped away in bankruptcy.

The real issue is not the fact that they can. It is that once the consumer reaches a point that a very high interest payday loan is necessary, there is usually a serious income and budget problem. A problem that if it hasn’t already done so, will lead to other debt, repossessed car(s) and even foreclosure.

If you feel like a payday loan may become necessary, do everything you can to avoid it. Payday loans and credit cards, for that matter, should only be used in emergency situations.

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The goal of most bankruptcy cases, be they of the chapter 7 or chapter 13 variety, is reduction in debt. Reduction of debt occurs in a bankruptcy at the end of the successful case and is called a “discharge”.

If a debt is “discharged” legally, the debtor’s obligation to pay is ended.

In a chapter 13 bankruptcy there are two types of bankruptcy discharge.