When you’re overwhelmed with debt and can’t see a way out, declaring bankruptcy might be an option to consider.
This process could potentially wipe out some or all of your debts, provide a path to financial recovery, and offer the fresh start you need.
A key part of the bankruptcy process is the ‘discharge’ of debt. But what does this mean? Let’s delve into the world of bankruptcy and debt discharge.
Before we explore debt discharge, it’s crucial to understand what bankruptcy is.
Bankruptcy is a legal procedure designed to help individuals and businesses eliminate or repay their debts under the protection of the bankruptcy court. There are two main types for individuals: Chapter 7 and Chapter 13.
Chapter 7, often referred to as “liquidation bankruptcy,” involves the selling off of a debtor’s non-exempt assets to pay creditors.
Chapter 13, known as “wage earner’s bankruptcy,” allows debtors with a regular income to create a plan to repay all or part of their debts over three to five years.
In the context of bankruptcy, a debt discharge is a legal order that relieves the debtor (the person who owes money) from being personally responsible for specific debts. In other words, the debtor is no longer legally required to pay any debts that are discharged.
The discharge effectively acts as a permanent order prohibiting creditors from taking any form of collection action on discharged debts.
This includes legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.
Not all debts can be discharged, and the type of debts that can be erased depends on the bankruptcy chapter filed.
In a Chapter 7 case, dischargeable debts include credit card debt, medical bills, past due utility bills, business debts, personal loans from friends, family, and associates, and more.
However, certain debts like most student loans, child support, alimony, some tax debt, and all court-ordered fines and restitution payments cannot be discharged.
In a Chapter 13 case, a broader range of debts can be discharged. These could include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and some debts arising from property settlements in divorce or separation proceedings.
Debt discharge happens at the end of the bankruptcy process, typically several months after the bankruptcy petition is filed for Chapter 7 and upon the completion of all payments under the repayment plan in Chapter 13.
The primary goal of filing bankruptcy is to discharge burdensome debt. This discharge provides significant relief to the debtor, offering a chance to rebuild and regain financial stability.
However, a debt discharge doesn’t necessarily mean you’re off the hook completely. Secured creditors may still seize collateral if you fail to keep up payments.
Moreover, as mentioned earlier, certain debts are non-dischargeable. It’s also worth noting that while a discharge eliminates the personal liability to pay discharged debts, it doesn’t remove any liens, which is a creditor’s right to seize collateral.
Debt discharge in bankruptcy can be a lifeline for those struggling under the weight of insurmountable debt. It’s a complex process that carries with it both relief and significant consequences, and it can drastically affect your financial future.
It’s crucial to understand what debts can be discharged and how it affects your overall financial standing. If you’re considering bankruptcy, it’s best to consult with a seasoned bankruptcy attorney to fully grasp the impacts and implications.
Remember, while bankruptcy provides a pathway toward a fresh financial start, it also serves as an opportunity to learn, grow, and establish healthier financial habits for the future.
It’s important to hire an experienced bankruptcy attorney as one of the steps to take when you’re facing bankruptcy and you need solid guidance and representation.
This is because there are many different types of bankruptcy. Only an experienced lawyer will know which one would work best for your specific situation.
It might seem like it makes sense to do this yourself. But most people don’t have the time or patience to understand all of the intricate details involved in bankruptcy.
That means they make mistakes by not choosing the right type, or by not filling out paperwork correctly. Both things could lead to delays and ultimately hurt your chances of getting any debt relief at all.
This is not a journey to take lightly, but it is also not one to take alone. If you need to file for bankruptcy, reach out to us today to start your journey with us.
If you want to learn more about the options you have and the steps to take, call us for a free consultation.
Parker and DuFresne
