What does "Discharge in Bankruptcy" Mean?

A discharge in bankruptcy is a court order given at the conclusion of legal bankruptcy proceedings that determines which debts may be liquidated and no longer owed, and which debts must still be paid. Put simply, if a debt is discharged in bankruptcy, the debtor ceases to owe the creditor the debt. A discharge in bankruptcy is permanent, and also means that the creditor may not legally take any further action in an attempt to reclaim the debt that was once owed, such as making phone calls or sending collections agencies to retrieve the money.

There are four different types of possible bankruptcy, and whether or not a discharge in bankruptcy may be given is largely dependent on the type of bankruptcy filed. Chapter 7, or a liquidation bankruptcy, is one of the most common; in this case, the existing debts are liquidated, and this is when a discharge in bankruptcy is most often seen. Chapter 11 bankruptcy is designed for businesses, and the business will typically work out a deal in order to pay creditors; liquidation is not a usual process. Chapter 12 and 13 are similar to Chapter 11 but they are intended for individuals rather than businesses. Chapter 12 is for farmers and Chapter 13 is for everyone else, but people filing these will generally be given an extended period of time in which to repay creditors, sometimes at a lower, agreed-upon amount.

Some debts are not possible to discharge in bankruptcy. These include items such as student loans, debts incurred in a divorce settlement such as child support or alimony, or tax debts to the government, among others. It is important to discuss all of these issues with a lawyer before deciding to file for bankruptcy, as it will immediately destroy one's credit history and make it virtually impossible to get credit for the next seven to ten years.

In general, it is possible to discharge in bankruptcy any unsecured debts, such as credit cards. If a company placed a lien against one's home or vehicle, however, this lien will not be discharged, but will still be owed to the company at the time the assets are sold. Otherwise, the existing debt is eliminated and no longer owed. Keep in mind that no one has an absolute right to have debts discharged in bankruptcy; this is a determination that is made in the court based on the information that is presented, and it may be contested by the creditor while the case is still in court before a final judgment has been made.