The goal of Chapter 7 bankruptcy is to legally discharge as many of the debtor’s debts as possible. The court accomplishes this goal through liquidation —selling off a portion of the debtor’s property — in order to pay the debtor’s creditors.
The Discharge Process
The court will appoint a trustee, who can be an attorney or another individual. The bankruptcy trustee will determine which of the debtor’s possessions can be sold in order to satisfy his or her creditors. The trustee’s job is to find some property that can be used, but not everything that a person owns will qualify for the bankruptcy sale. The courts don’t force debtors to emerge from bankruptcy with little more than the shirts off their backs.
The Chapter 7 discharge releases a debtor forever from having to pay qualifying debts after the court has finalized the bankruptcy. In some cases, a creditor may place a lien on a secured debt, such as a car loan, so that the creditor can take back the item. After the discharge, creditors receive notice that they may no longer contact the debtor about those debts. If a creditor violates this order, the creditor may be held in contempt of court.
Typically, a discharge will become official approximately four months after the debtor files a bankruptcy petition with the court. If one or more creditors object to the terms of the discharge, the bankruptcy case could take longer. A creditor must objects to a discharge through litigation. A creditor is not allowed to contact the debtor directly once the debtor files for chapter 7 bankruptcy. Rather, all communication must happen through the court-appointed trustee.
Issues Affecting a Chapter 7 Discharge
A court can revoke a bankruptcy discharge if a trustee or a creditor proves that the debtor acted in a fraudulent manner. The trustee or creditor must make any request to revoke a discharge within one year of the discharge.
A typical discharge does not include all types of debts. Some debts do not qualify for discharge under Chapter 7 bankruptcy. These debts often include include tax debts, alimony or child support payments, court-ordered payments following a DUI conviction, and student loan debts.
A discharge is a legal way to relieve a debtor from having to pay bills that he or she is unable to pay. With the discharge, creditors can no longer contact the debtor or try to collect a debt. Some types of debt cannot be discharged under chapter 7, but an experienced bankruptcy attorney can help a debtor learn what can and cannot be discharged.