Bankruptcy
Discharge
Bankruptcy discharge happens when debts are erased by bankruptcy.
The bankruptcy discharge becomes a permanent order directed
to the creditors on behalf of the debtor. This stops creditors
from taking any action or collection on discharged debts,
including legal action, telephone calls, letters or personal
contact. This action relieves the debtor of personal liability
for all discharged debts. A valid lien, (a charge upon specific
property to secure payment of a debt that has not been avoided)
made unenforceable in the bankruptcy case will remain after
the bankruptcy case. In this situation, a secured creditor
may enforce the lien to recover the secured property.
Timing of a bankruptcy discharge depends on the chapter under
which the case is filed. In a chapter 7 bankruptcy case the
court usually grants the discharge on expiration of the time
fixed for filing a complaint objecting to discharge and the
time fixed for filing a motion to dismiss the case for substantial
abuse. This usually occurs four months after the date the
debtor files the petition with the clerk of the bankruptcy
court. In chapter 11 cases, the discharge occurs upon confirmation
of a chapter 11 plan. In cases under chapter 12 and chapter
13, the court grants the bankruptcy discharge as soon as the
debtor completes all payments under the established plan.
Since a chapter 12 or chapter 13 plan may provide for payments
to be made over three to five years, the discharge typically
occurs four years after the date of filing.
If there is no litigation involving objections to the discharge,
the debtor will automatically receive a bankruptcy discharge.
The federal rules of a bankruptcy procedure directs the clerk
of the bankruptcy court to mail a copy of the order of discharge
to all creditors, the trustee in the case and the trustee’s
attorney. The debtor and the debtor’s attorney also
receive copies of the discharge order. The notice, which is
simply a copy of the final order of discharge, is not specific
as to those debts determined by the court to be not covered
by the discharge. The notice informs creditors that the debts
owed to them have been discharged and that they should not
attempt any further collection. They are cautioned in the
notice that continuing collection efforts is a punishable
offence. Any unintentional failure on the part of the clerk
to send the debtor or any creditor a copy of the discharge
order promptly, within the time required by the rules, does
not affect the validity of the order granting the bankruptcy
discharge.
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