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A bankruptcy discharge is a legal term primarily used in the United States for cases falling under Chapter 7, Chapter 11, Chapter 12, or Chapter 13 of the bankruptcy code. Essentially, it is a court-authorized order that frees a debtor from being personally responsible for certain kinds of debts. Once a discharge has been issued for a debt, a debtor is no longer legally obligated to repay it, and a creditor cannot pursue a collection action against the debtor to recover it.
When a person files for bankruptcy, he or she usually needs to present the court with a list of any outstanding debts, and the court then notifies any creditors about the proceeding. The creditors are typically given a deadline to object to the debtor’s discharge list. Once this deadline passes, a bankruptcy judge normally issues an order of bankruptcy discharge. Depending on the type of action, the debtor may be able to release himself from personal liability for business debts, personal loans, outstanding credit card amounts, and judgments for personal injury or negligence claims. A creditor may specifically ask the judge to reconsider whether one of these debts should actually be discharged.
Even though a debtor is no longer personally responsible for discharged debts, a creditor may have the right to take property secured by a valid lien. For example, a creditor may hold a lien on a vehicle after a bankruptcy discharge. If the car loan is not paid by the debtor, the creditor may have the right to repossess the vehicle. The creditor could not, however, pursue a collection action such as calling the debtor to demand payment or sending a payment demand letter.
Certain types of debts are not subject to bankruptcy discharge, and these vary depending on the specific bankruptcy law at issue. Generally, debts that cannot be discharged include taxes and student loans as well as child and spousal support. If a debtor has been convicted of certain crimes, such as fraud, embezzlement, or larceny, he or she usually cannot discharge court-ordered restitution payments. Debts relating to willful or malicious injury and wrongful death stemming from a debtor’s intoxication are other types of debts that generally cannot be discharged.
Even if a debt has been released, a debtor can elect to voluntarily repay it. The creditor can receive voluntary payments, but cannot initiate collection attempts for any debts that have been released by the bankruptcy court. If a creditor does not adhere to the terms and conditions of the bankruptcy discharge, he or she may be found in contempt of court and ordered to pay a fine.