Chapter Seven Bankruptcy Discharge

by


A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter seven discharge is subject to many exceptions, before filing debtors should consult competent legal counsel to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr. P. 4004(c).


The grounds for denying a individual debtor a discharge in a chapter seven case are construed against the moving party and are narrow. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to produce or keep financial records or adequate books; committed a bankruptcy crime such as perjury; failed to explain satisfactorily any loss of assets; failed to obey a lawful order of the bankruptcy court; fraudulently concealed, transferred, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management. 11 United States Code, Sub-Section- 727; Fed. R. Bankr. P. 4005.

Even after a discharge is granted, secured creditors may retain some rights to seize property securing an underlying debt. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), she or he may decide to "reaffirm" the debt. A reaffirmation is an agreement between the creditor and the debtor that the debtor will pay a portion or all of the money owed and will remain liable, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not take back or repossess the automobile or other property so long as the debtor continues to pay the debt.

If the debtor decides to reaffirm a debt, she or he must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court. 11 United States Code, Sub-Section- 524(c). The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures described in 11 United States Code, Sub-Section- 524(k). Among other things, the disclosures must advise the debtor of the amount of the debt being reaffirmed and how it is calculated and that reaffirmation means that the debtor's personal liability for that debt will not be discharged in the bankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement. Unless the debtor is represented by an attorney, the bankruptcy judge must approve the reaffirmation agreement.

If the debtor was represented by an attorney in connection with the reaffirmation agreement, the attorney must certify in writing that she or he advised the debtor of the consequences and legal effect of the agreement, including a default under the agreement. The attorney must also certify that the debtor voluntarily made the agreement and was fully informed that reaffirmation of the debt will not create an undue hardship for the debtor's dependants or the debtor. 11 United States Code, Sub-Section- 524(k). The Bankruptcy Code requires a reaffirmation hearing if the debtor has not been represented by an attorney during the negotiating of the agreement, or if the court disapproves the reaffirmation agreement. 11 United States Code, Sub-Section- 524(d) and (m). The debtor may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists. 11 United States Code, Sub-Section- 524(f).

An individual receives a discharge for most of her or his debts in a chapter seven bankruptcy case. A creditor may no longer continue or initiate any legal or other action against the debtor to collect a discharged debt. But not all of an individual's debts are discharged in chapter seven. Debts not discharged include debts for child support and alimony, debts for certain educational benefit over payments, certain taxes, or loans guaranteed or made by a governmental unit, debts for malicious and willful injury by the debtor to another entity or to the property of another entity, debts for personal injury or death caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders. 11 United States Code, Sub-Section- 523(a). The debtor will continue to be liable for these types of debts to the extent that they are not paid in the chapter 7 case. Debts for property or money obtained by false pretenses, debts for defalcation or fraud while acting in a fiduciary capacity, and debts for malicious and willful injury by the debtor to another entity or to the property of another entity will be discharged unless a creditor timely files and prevails in an action to have such debts declared non dischargeable. 11 United States Code, Sub-Section- 523(c); Fed. R. Bankr. P. 4007(c).

The court may revoke a chapter 7 discharge on the request of the trustee, a creditor, or the U.S. trustee if the discharge was obtained through fraud by the debtor, if the debtor acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender the property to the trustee, or if the debtor (without a satisfactory explanation) makes a material misstatement or fails to provide documents or other information in connection with an audit of the debtor's case. 11 United States Code, Sub-Section- 727(d).

View the Chapter Seven Bankruptcy Topics

Learn the different Types Of Bankruptcy Cases

Although all information has been written in good faith and reviewed, please email us at [email protected] to report any inaccuracies.