Discharge under Chapter 7 of the Bankruptcy Code

The ultimate goal of any request for bankruptcy protection by a debtor is to allow the debtor to obtain an organized relief, in some form, from creditors attempting to collect on a debt. The ideal bankruptcy should bring the debtor out of bankruptcy in a better financial stance than when they went into bankruptcy. This is the ideal result that your Montgomery, Selma, Central Alabama bankruptcy attorney at The Sellers Law Firm strives for when we represent someone in bankruptcy. First, what is a discharge?

When a bankruptcy petition is filed what is known as the automatic stay covers the debtor from any and all collection efforts by a creditor for any debt owed. This means the creditor cannot call, file suit, repossess security or enforce a garnishment. I describe the discharge as a continuation of the automatic stay for any debt that is dischargeable forever into the future. In a Chapter 7 bankruptcy this means any debt that is not reaffirmed or excepted from discharge by Congress for a public policy reason may not be collected by a creditor. Obtaining a discharge should allow the debtor to continue on in life without any worries or concerns that an old debt will come back to stress the debtor’s financial situation. However, we need to explore some of the issues in this explanation of a discharge.

The first issue is what does it mean to reaffirm and debt and thus exempt that debt from discharge. Generally, there are two major classes of debt, secured debt and unsecured debt. Secured debt is debt that is attached to a material item be it a car, house, or a particular item purchased with the borrowed money. The connection between the material item and the debt is referred to as a lien. For instance, a debtor may enter bankruptcy with a car that is security for a debt. This means the creditor may either collect on the money loaned or to repossess the car. If the debtor wishes to continue to use the car then they must agree to pay the creditor for the money loaned through a reaffirmation agreement with the creditor. The reaffirmation agreement spells out the terms and requirements between the debtor and creditor for payments on the car loan while the bankruptcy is going and after the case is closed. But be aware that a creditor is not required to enter into a reaffirmation agreement if there are payments that have not been made on the loan either prior to or during the bankruptcy process. Your Montgomery, Selma, and Central Alabama bankruptcy attorneys at The Sellers Law Firm will be able to assist and advise you during the reaffirmation process. If the secured debt is not reaffirmed, then the debtor is required to surrender the collateral and any remaining balance owed to the creditor will become unsecured debt and subject to discharge.

While a discharge is available to most debts under Chapter 7 bankruptcy, there are some 19 categories of debts that Congress as exempted from discharge. These exempted debts include debts not listed in the bankruptcy petition, certain tax claims, spousal or child support or alimony, debts for willful and malicious damage to persons or property, governmental fines and penalties, governmental backed student loans or benefits overpayments, and debts for personal injury while driving a vehicle while intoxicated. There is also a special class for debts incurred though fraud or maliciousness which are non-dischargeable if the creditor requests the bankruptcy court to exclude them from discharge. Without the creditor asking then these debts may be discharged.

The debtor will obtain a discharge when the time frame for the objection to dischargeability has passed which is 60 days after the hearing is held where the trustee and any creditors may question the debtor about the case also known as the 341 hearing. The 341 hearing is usually held within 50 days after filing the petition. Ultimately, a discharge under Chapter 7 is granted about 4 months after filing.

Finally, the effect of the discharge is to keep creditors from attempting to collect a debt after the bankruptcy case is closed. One additional fact is that discharges are not unlimited. If you have filed a prior Chapter 7 and obtained a discharge, then you cannot file another Chapter 7 and obtain another discharge for 8 years. This time frame changes is you are involving a Chapter 13 petition with the Chapter 7. All these issues are one that the Montgomery, Selma, and Central Alabama bankruptcy attorneys at The Sellers Law Firm are able to assist you with if you need to file for bankruptcy protection.

At The Sellers Law Firm, we are always happy to answer any questions that you have regarding pension and retirement plans. All consultations are always free, and we can generally meet with you within 24 hours. We have four offices in Central Alabama to serve you. We are located in Montgomery, Selma, Greenville, and Troy. Please call or text us at 334-LAWYERS (529-9377) to set an appointment.  Our phone lines are answered 24 hours a day! You may also reach us by using the Contact Form on our website. Remember that doing nothing changes nothing so act today!