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What happens when debt is discharged in Chapter 7?

If you’re considering Chapter 7 bankruptcy, one of the terms you’ll see a lot as you learn about the process is “discharge.” That’s a big step in a bankruptcy case. It usually happens approximately four months from the bankruptcy filing.

In Chapter 7, the bankruptcy trustee uses your nonexempt assets to pay off your creditors. A court order is then issued at the end of the process that relieves you of your repayment obligations for any remaining dischargeable debts.

Most common debts, including credit card debts, personal loans, medical bills, judgments from lawsuits and other unsecured debts, are dischargeable in Chapter 7 bankruptcy. Once a debt is discharged, the creditor typically can no longer contact you or take other collection actions, including lawsuits.

Creditors receive a copy of the order. It’s important to keep a copy for yourself. Creditors may not always get the order right away and may still make attempts to collect on a discharged debt, and you may need to send them a copy yourself.

Note that if a creditor has a lien on any property as part of a secured debt, they are still allowed to repossess that property even if the debt was discharged. Further, if you had a co-signer on any of your loans or other debt products, creditors can still collect on the debt from them.

The debts that a person filing for Chapter 7 can’t discharge include things like support payments and other financial obligations from a divorce agreement, fines and restitution owed because of a crime and some tax debts. Student loans are difficult — but not impossible — to discharge.

Bankruptcy can be a daunting and complicated process. That’s why it’s important to have an experienced attorney by your side. They can first help you determine which type of bankruptcy is appropriate for you — Chapter 7 or Chapter 13. They can then guide you through the process to help ensure that your rights are protected and that you are prepared to move forward after your debts are discharged.

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