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Monday, September 21, 2015

What happens to a debt after it is discharged bankruptcy?

After a debt is discharged, it is eliminated completely. The debtor is no longer legally required to make payments on the debt. The discharge is a court order that requires that all collection efforts on the debt cease. This is an extension of the automatic stay issued at the beginning of the bankruptcy. The creditor will likely write off this loss in tax filings, so some monies will be saved in this regard.  If the creditor attempts to collect on a debt in bankruptcy, or after it has already been discharged, the court may issue sanctions against the creditor. This is enforced whether the creditor attempts collection by letter, phone call or lawsuit. Not every debt is discharged in a chapter 7 bankruptcy, so it is important to confirm which debts are eligible before asking the court for assistance.

A discharge is typically issued automatically by the bankruptcy court four months after a bankruptcy petition is filed unless a timely objection is filed by a creditor. Once issued, a discharge can only be revoked if a creditor appeals to the bankruptcy court alleging that the petitioner obtained the discharge through fraud or that the petitioner failed to disclose pertinent information to the court, committed one of several acts of impropriety listed in the bankruptcy code or failed to provide adequate explanation of a misstatement in an audit of the case. 

There is nothing in the law preventing a debtor from making payments on a debt that has been discharged, even though there is no legal obligation to do so. If a discharged debt was owed to a friend or family member, however, there is no prohibition on repaying that debt. There are 19 categories of debt that must be paid even after a chapter 7 bankruptcy, including debts secured by collateral, such as homes or cars, most student loans, some tax debts and child support arrears. Individuals should speak to an attorney before declaring bankruptcy to determine if any debts are non-dischargeable in their individual cases.  


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