You can discharge some or all your debts under Chapters 7, 11, 12 and 13 of U.S. Bankruptcy code. “Discharge” is a legal term that means you are no longer personally responsible for the money and don’t have to repay it. Once the debt has been permanently discharged, any creditor, such as a hospital, credit card company or bank, cannot contact you or pursue collection actions against your account.
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Debt Discharge Comes After Selling Off Assets
Chapter 7 bankruptcy can often involve the liquidation or selling of assets to pay off past debts. Once this process is complete, you can have your qualifying debts forgiven. Federal and state bankruptcy exemptions protect some property from being liquidated. Many people who file Chapter 7 can retain a large portion of their property. Your attorney and the bankruptcy trustee will decide what property you can keep and make deals with creditors.
The courts will usually discharge debts immediately after assets have been liquidated. This happens approximately four months after your bankruptcy filings. You will need to take classes in debt management between filing bankruptcy court and receiving your discharge. Otherwise, the judge could deny you the discharge.
Debts that are not dischargeable
There are many exceptions to the rules regarding what debt can be discharged in Chapter 7 bankruptcy. For a thorough review of your debts, you should consult an experienced attorney.
These debts are not normally dischargeable:
- Child support and Alimony
- Certain tax debts
- Student loans
- Certain educational debts
- Personal injury lawsuit debts
- Certain criminal restitution orders may result in debts
- These debts have to be paid according to federal and state law.
- Reaffirmation can stop creditors from taking your property
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Even after a discharge, some creditors may still have rights to your property. A “lien” is one way to do this. A lien can be used by a creditor to foreclose payment or to take back property.
Let’s take, for example, your car as an example of secured property. The creditor might try to reaffirm your debt by attaching a lien. If you and your creditor are in agreement, this “reaffirmation” takes place.
- This debt will continue to be your responsibility
- You will repay a portion or all of the debt
- Even though the debt is discharged in bankruptcy, you still have to pay
- As long as you pay the debt, the creditor won’t take possession of the property.
Before the order of discharged credit can be entered, reaffirmation must take place. You should discuss your plans to keep your car or other property with the creditor as soon as possible. An attorney can help you with this and negotiate a fair payment schedule.
Property that can be taken before a discharge
Bankruptcy is designed to relieve you from the debt burden. Therefore, removing all your property would not be a good idea as you would have to repurchase a car or other items.
Creditors may not be able to take back property that is essential for modern living. You may have to petition a judge to stop creditors from taking it back.
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Here are some examples of property that a creditor might attempt to take back:
- Motor vehicles and a second vehicle
- Vacation home or second home
- Expensive clothing
- Furniture for the home
- Tools that you use in your work
- Music instruments (except if you can prove that you are a professional musician).
- Bank accounts, cash, stocks, bonds and other investments
- Your equity in your home is a portion
- Unpaid wages are a portion of the earned earnings
- Bank account accumulated public benefits
- Personal injury damages
- Family heirlooms
Although this may seem daunting, creditors will not be able to seize these items. Many of these items are protected by the exemptions and wildcard exemptions in your state. They are essential to work or daily living.
Creditors will be notified that your debts have been paid. If they disagree with the discharge, they can try to reaffirm these items or sue for debt.
Once the debt has been discharged, it is considered final. Creditors cannot sue, harass, or attempt to take your property.
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How To Get a Debt Discharge?
It isn’t an easy decision, but it can be necessary. Asking an attorney about what property is exempted in a Chapter 7 bankruptcy and what can be included is a good way to start the process. They will be able to tell you what creditors might pursue and how to stop them legally and effectively.