Bankruptcy Law Nebraska Lawyers: Chaloupka, Holyoke, Hofmeister, Snyder & Chaloupka, L.L.O. Attorneys serving Scottsbluff

Articles

Bankruptcy Law: Effect of Bankruptcy Discharge
March 2000

Introduction
The biggest advantage to filing for bankruptcy is the discharge of debts. In most individual situations, this will occur in the context of a Chapter 7 Bankruptcy. Discharge means the elimination of liability for a debt. Once a debt is discharged, the debtor is no longer legally bound to repay the discharged debt, and creditors may not pursue collection of these debts. However, discharge is not automatic and some debts, such as child support, are not dischargeable at all.

Discharge in Bankruptcy
Although creditors may not take the debtor to court to collect on the debt, or take any other steps to recover a debt, creditors may have a few options depending on their circumstances. For one, discharge applies only to the debtor involved in the bankruptcy. When more than one person is liable for the obligation, the creditor may pursue collection from the others, such as spouses or the cosigners who did not file Bankruptcy. Secondly, if the debt was secured with a piece of property, the creditor may still foreclose on the property. Occasionally, a debtor will agree to pay the debt despite the discharge. This is called "reaffirmation" and is often agreed to by the debtor so they can keep property, which the creditor would otherwise be able to take. Reaffirmation agreements are closely scrutinized and, to avoid the possibility of an agreement made under pressure, they will only be binding if a number of requirements are met.

For policy reasons, Congress made certain types of debt nondischargeable when it crafted the bankruptcy laws. Depending on the chapter under which bankruptcy is filed, these include:

Chapter 7 is the most common form of bankruptcy. Individuals and businesses may file for Chapter 7 bankruptcy, but the discharge of debt under Chapter 7 applies only to individuals, not businesses. All of the nondischargeable debts listed above apply in Chapter 7. The rest of the debts are discharged except, generally speaking, those to which the debtor obligated himself after he was declared bankrupt by the bankruptcy court.

Chapter 13 is available only to individuals. Under chapter 13, the debtor creates a three to five year plan for repayment of all or a portion of his or her debt. As an incentive to successful completion of the plan, the rules allow discharge of a greater number of debts. Nondischargeable debts in Chapter 13 are alimony, maintenance and support obligations, educational loans, driving while intoxicated obligations, payments imposed on the debtor as a result of a criminal conviction, and certain long term debts. When a debtor can not successfully complete a chapter 13 plan, he or she may choose to convert the case to a Chapter 7 bankruptcy or to request a hardship discharge. A hardship discharge will only be granted by the court under certain limited circumstances and will discharge no more debts than Chapter 7 bankruptcy would.

Just about everyone is eligible to file Chapter 11. Under Chapter 11, discharge is granted when a plan for repayment is confirmed. When the debtor is a business entity, all debts are discharged and the only obligations the debtor has are those outlined in the plan. The individual filing under Chapter 11 must pay those debts outlined in the payment plan in addition to any debts listed as non-dischargeable under Chapter 7.

Chapter 12 is limited to "family farmers," meaning both individuals and certain businesses. Discharge under this chapter is usually granted upon completion of a plan. A hardship discharge is also available under this chapter. Remaining debt is discharged except for nondischargeable debts under Chapter 7 and any long-term debts that extend beyond the completion of the plan.

Conclusion
The discharge of debt varies under the different chapters of bankruptcy. Certain chapters allow for a more liberal discharge of debt than others, but requires greater payment by the debtor before discharge. The effect of the discharge, however, is the same. The debtor is no longer liable for those discharged obligations and creditors are forbidden to pursue payment from the debtor. Creditors do have collection options, however, especially when they plan carefully before bankruptcy is filed. To best evaluate the effect of bankruptcy discharge on you as a debtor or creditor, seek the counsel of an experienced bankruptcy attorney.

CHHSC’s Experience with Discharge of Debt in Bankruptcy Proceedings
Paul Hofmeister and Andrew Snyder have over twenty-five (25) years of combined experience in the Bankruptcy Courts of Nebraska. Either Mr. Hofmeister or Mr. Snyder can provide you with competent representation at a reasonable price. Mr. Hofmeister may be contacted at (308) 635-5000 or Mr. Snyder may be contacted at (308) 635-5000.