How is a discharge obtained in a Chapter 7 bankruptcy?

One of the most anticipated moments of a bankruptcy case for the debtor is the discharge. This is the wiping out of certain debts, allowing the individual going through the bankruptcy process to begin on a fresh financial footing. The discharge is granted by the bankruptcy court upon completion of appropriate steps by the debtor and creditors.

The Chapter 7 process begins with an application. A debtor must participate in mandatory credit counseling first, a step that could provide alternatives including possible negotiation of repayment terms directly with creditors. If the individual still deems that bankruptcy is the most suitable approach to dealing with financial pressures, a means test must be completed to verify that the financial requirements for this process have been met. At the time a bankruptcy petition is filed, a stay is issued, putting a halt to collection activities. This is important for those who are dealing with overwhelming collections activities from creditors.

The trustee will schedule a meeting that includes the debtor and creditors so that questions can be asked or objections made in the case. While there are instances in which a discharge can be denied, this occurs in less than 1 percent of cases. A discharge order may be issued between two and three months after the meeting with creditors has occurred. A discharge only applies to eligible debts, meaning that a debtor will still be responsible for paying back taxes, spousal and child support, criminal judgments and government-guaranteed student loans.

A debtor who wishes to keep a home or a financed vehicle may want to discuss bankruptcy options with an attorney prior to filing to ensure that the form of bankruptcy selected is consistent with those goals. Additionally, an attorney may help in verifying that all creditors are correctly included in the paperwork so that debts are not inadvertently omitted.

Source: US Courts, “The Chapter 7 Discharge“, October 22, 2014