New Jersey Bankruptcy Lawyer Discusses the Effects Of a Bankruptcy Discharge and Debt Elimination
In the event that the Chapter 7 debtor meets all the criteria of filing a Chapter 7 bankruptcy, the debtor is entitled to a discharge. A discharge is the elimination of debt. A discharge means that no pre-petition (prior to the bankruptcy filing) creditor may commence or proceed with an action against the debtor with regard to any pre-petition debt. A general discharge discharges the debtors’ personal liability. This means that a creditor may never proceed against a debtor for collection of the money that is due on a debt. In other words, a creditor may never sue a debtor for money, or attempt to obtain payment for the debt, such as levying on their bank accounts and garnishing their wages.
A discharge does not prevent a creditor from proceeding against the debtor for possession of property that was provided as collateral, such as a house, furniture or other property. In the event that a creditor has a legitimate secured interest in the property of the debtor, the creditor is permitted to commence or proceed with an action to obtain possession of the property, in the event that the debtor is in default with the contract to make payments. In other words, if a Chapter 7 debtor receives a discharge from the court and the debtor is in arrears with their mortgage payments, the mortgage company may proceed with a foreclosure action but may not proceed with an action against the debtor for the money that is due on the mortgage.
Pursuant to the 2005 bankruptcy amendments, a debtor may keep possession of their car, only, if they enter a reaffirmation agreement with the auto finance company and the court approves the agreement. Typically, the debtor must also be current with the auto finance payments at the time of the Reaffirmation Agreement. Reaffirmation Agreements are explained in a separate portion of this website.
The discharge only eliminates debt that was incurred prior to the bankruptcy filing. The bankruptcy code specifically lists types of debt that are not discharged in a Chapter 7, even though the debtor meets all the criteria.
The following debts are not discharged in a Chapter 7 and the debtor is still liable for these debts:
- certain types of tax liability;
- debt incurred by fraud;
- lack of certain notice to a creditor;
- debt incurred by debtor’s willful and malicious injury;
- a fine that is due to a governmental unit;
- student loans;
- death or personal injury caused by debtor by way of drunk driving;
- child support or alimony;
- a debt due to a spouse or former spouse in connection with a divorce or separation agreement;
- post-petition condominium fees;
- if the debtor committed fraud with regard to any aspect of the bankruptcy process;
- debtor’s failure to cooperate with the court and/or the trustee;
The following debt is presumed to be non-dischargeable:
- consumer debt incurred to a single creditor for luxury goods and services in the total amount of more than $500 within 90 days before the bankruptcy filing;
- cash advances incurred within 70 days of the bankruptcy filing in an amount in excess of $750.
Please note that even though the trustee and the court may agree to enter an order of discharge, a particular creditor may contest the discharge of your particular debt to that creditor, based on fraud. Under this scenario, the creditor may bring what is called an “Adversary Complaint”, to contest the dischargeability of that particular debt.
DISCHARGE IN CHAPTER 13
As explained in our section about differences between Chapter 7 and Chapter 13, any debtor in Chapter 13 is required to make the monthly payments to a trustee for 36 to 60 months. Each month the trustee makes a disbursement to the appropriate creditors. Typically, in a Chapter 13, the order of discharge or court order eliminating debt is entered after the completion of the plan. Therefore, it may take 36 to 60 months to obtain a discharge of your debt, unlike the Chapter 7 where a discharge is typically entered approximately five months after the filing of a Chapter 7. Typically, the following debt is excepted from a discharge in a Chapter 13:
- in the event that the debtor received a discharge in a Chapter 7 or Chapter 11 within four years prior to the filing of the present Chapter 13 case;
- in the event that the debtor received a prior Chapter 13 discharge within two years of the filing of the present case;
- the debtor has failed to pay all required court ordered domestic support obligations throughout the entire chapter 13 plan;
- certain taxes;
- debt that is incurred by fraud;
- failure to provide notice to the creditor under certain circumstances;
- debt that is due for a domestic support obligation;
- student loans;
- if the debtor caused death or personal injury from a DUI;
- debt that is based on restitution in connection with a criminal action.
A discharge in connection with a chapter 13 bankruptcy case is referred to as a “super discharge” because it discharges debt that is not discharged in a chapter 7. However, the 2005 bankruptcy amendments limited the differences of the debt that is discharged between each chapter. Please note the exceptions to discharge listed above, reflects only a portion of the debt that is not included in the discharge of chapters 7 and 13.
Please call the Law Offices of Robert Manchel today at (866) 503-5655 to discuss your options for seeking bankruptcy protection.