Effects of a Chapter 7 Discharge
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What Is a Chapter 7 Discharge of Debt?
Chapter 7 discharge of debt refers to the effects of filing for Chapter 7 Bankruptcy. An individual who files for chapter 7 bankruptcy may be eligible to have their debts discharged, which means that they won’t be liable for any further payments on outstanding debts. Thus, a “discharge” is a court order that prohibits creditors from collecting on the plaintiff’s debts.
Filing for chapter 7 bankruptcy doesn’t always allow all of the person’s debts to be discharged. Many people expect that filing a Chapter 7 bankruptcy will wipe out all of their debts. However, that is not always the case. Chapter 7 bankruptcy only discharges certain debtors of certain debts. The availability of discharge depends on the type of bankruptcy proceeding involved, who the debtor is, and what type of debts the debtor has.
What Are Some Other Effects of a Chapter 7 Discharge?
The main effect of a Chapter 7 discharge is the release from debt. This is probably one of the central reasons why many people decide to file for Chapter 7 bankruptcy. Other effects of a chapter 7 discharge include:
- Effects on credit scores (may be positive or negative depending on the circumstances)
- The debtor will have to take a mandatory financial management course
- The debtor may have to wait a certain time period before being able to file for another chapter 7 discharge (usually 8 years after the previous filing)
What Debts Are Discharged in Chapter 7 Bankruptcy?
In a Chapter 7 bankruptcy, although not all debts are dischargeable, the majority of debts can be discharged through Chapter 7. Below is a list of all the common dischargeable debts:
- Credit card debt
- Collection agency accounts
- Personal loans from friends or family
- Business debts
- Money owed under lease agreements
- Civil court judgments
- Tax penalties
- Auto accident claims
- Utility bills
- Medical bills
The following types of debts cannot be discharged through a Chapter 7 Bankruptcy filing (“non-dischargeable debt”): Debts related to child or spousal support; some tax debts; debts due to criminal fines or criminal restitution; DUI-related debt; student loan debts; and debts for willful or intentional injuries caused by the debtor.
What If the Creditor Still Tries to Collect on a Discharged Debt?
If a creditor attempts to collect on debts that were discharged through a court hearing, they will usually have to face legal consequences, such as a court fine. The discharge order is final and operates like an injunction, which basically prohibits the debtor from further collection attempts.
One should also note that the discharge will also prohibit the creditor from even attempting to communicate with the debtor concerning the discharged debt.
Can a Chapter 7 Debt Discharge be Denied or Revoked?
A court may choose to deny an application for Chapter 7 discharge of debt if the debtor:
- Failed to provide the necessary documents, especially tax documents;
- Failed to complete the mandatory financial management course;
- Intended to defraud the creditor by concealing or transferring property
- Engaged in perjury or other crimes during the bankruptcy proceedings;
- Failed to account for lost assets;
- Violated an earlier court discharge order
The court may also choose to revoke a discharge that was already issued, if it is found that the discharge was obtained through fraudulent means.
What is Debt Reaffirmation?
In some Chapter 7 bankruptcy proceedings, the court may enforce a debt reaffirmation agreement. This is an arrangement between the debtor and creditor stating that the debtor will still remain liable on a debt even if it could have been discharged during the bankruptcy hearings. The debtor thus chooses to remain liable on the debt and will have to continue the payments after the bankruptcy hearings are concluded. In return, the creditor makes a promise that they won’t seize the debtor’s property, so long as payments continue to be made on the debt.
Debt reaffirmation agreements can be beneficial in some cases, as it allows the debtor to hold on to their properties. However, the debtor may have to provide documentation that they’ll be able to make the debt payments in the future. If the debtor doesn’t have enough balance to secure future payments, the court may deny the debt reaffirmation.
What Happens After Chapter 7 Discharge Has Been Granted?
When a Chapter 7 discharge has been granted to a debtor or petitioner, it protects the debtor from any further liability on the discharged debts and the debtor does not have to pay these debts. After the discharge has been granted, no legal action may be taken against the debtor to collect on discharged debts, and no collection calls or letters may be sent with regard to such debts. A discharge does not actually cancel or extinguish the debt. Instead, discharge merely extinguishes the debtor's personal liability. Also, a discharge does not automatically discharge co-debtors' or guarantors' liability.
Do I Need a Lawyer for Assistance With a Chapter 7 Discharge?
The effects of a chapter 7 discharge can be far-reaching. If you need any advice or assistance with a Chapter 7 bankruptcy discharge, you may wish to contact a bankruptcy lawyer in your area. Your attorney will be able to assist you in filing the required documents, and can provide representation during court hearings.
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Last Modified: 08-20-2015 03:04 PM PDT
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