"Discharge" in the bankruptcy sense refers to clearing the debtor's slate of all, or most, past debts. Although many people expect that filing bankruptcy will wipe out all of their debts, that is not always the case. Bankruptcy only discharges certain debtors of certain debts. The availability of discharge depends on the type of bankruptcy proceeding involved, who the debtor is, and what type of debts the debtor has. An experienced bankruptcy attorney can advise clients as to which debts will be discharged by a Chapter 7 bankruptcy and which debts will remain.
A Discharge Does Not Wipe The Slate Completely Clean, But It Does Afford Great Relief
In a Chapter 7 liquidation case, if the debtor was in some way dishonest or uncooperative, such as by making fraudulent transfers or failing to keep adequate records, discharge may be denied. Even after discharge is granted, however, certain debts remain. The timing of the debt is one factor in determining whether it will be discharged. In Chapter 7 cases, only debts that arose before the date of the order for relief will be discharged. Section 523 of the Bankruptcy Code sets out other exceptions to discharge applicable in Chapter 7 cases. Many of these exceptions relate to debts involving some type of fraudulent conduct by the debtor.
When a discharge is granted, it protects the debtor from any further liability on the discharged debts. No legal action may be taken against the debtor to collect on discharged debts, and no collection calls or letters may be sent with regard to such debts. A discharge does not actually cancel or extinguish the debt, however; it merely extinguishes the debtor's personal liability. Also, a discharge does not automatically discharge co-debtors' or guarantors' liability.
A bankruptcy discharge also has no effect on liens. Take, for example, the situation in which the debtor owes the creditor $5,000 and the debt is secured by the debtor's car, which is worth $3,000. If the debtor files for Chapter 7 relief and receives a discharge, the discharge does not extinguish the creditor's security interest. In other words, the creditor can still repossess the car. It cannot, however, go after the debtor for the $2,000 difference between the debt and the value of the security. That is the personal protection afforded to the debtor by the bankruptcy discharge.
A lawyer with experience in bankruptcy law can inform debtors on whether their debts will be discharged by bankruptcy and can also advise creditors on how debts owed to them will be affected by a bankruptcy discharge.