What Won't Be Dismissed in Chapter 7

By Heather Frances J.D.

In a Chapter 7 bankruptcy, often called liquidation bankruptcy, a debtor's non-exempt assets are sold to pay the debtor's creditors. Often, a debtor has no non-exempt assets -- or not enough to cover his debts. In such cases, the debtor's remaining, unpaid debts can be discharged, or erased, by the bankruptcy court. Not all debts, however, can be discharged.

In a Chapter 7 bankruptcy, often called liquidation bankruptcy, a debtor's non-exempt assets are sold to pay the debtor's creditors. Often, a debtor has no non-exempt assets -- or not enough to cover his debts. In such cases, the debtor's remaining, unpaid debts can be discharged, or erased, by the bankruptcy court. Not all debts, however, can be discharged.

Debts Ineligible for Discharge

Most debts are eligible for discharge in Chapter 7 cases, but there are several types of debt that cannot be discharged no matter the circumstances of the case. Debts for spousal or child support, for example, cannot be discharged, nor can some tax debts or other debts to governmental entities. Additionally, debts incurred due to injuries the debtor caused while driving drunk or for malicious injuries to another person or his property are non-dischargeable. Student loan debts are generally not dischargeable unless the debtor meets certain criteria. If your forget to list a creditor on your bankruptcy petition, the court cannot discharge it either. Debtors who are interested in erasing a certain type of debt may wish to check to determine whether the debt is dischargeable before filing bankruptcy.

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Discharges Can Be Denied

Chapter 7 debtors do not have an absolute right to receive a discharge, and creditors or the court-appointed trustee can object to the discharge. When a creditor or trustee files an objection, he must be prepared to prove the debtor should not receive a discharge. This is because the trustee will have the burden to provide proof should the objection case go to trial. Discharges can also be denied if the debtor fails to comply with bankruptcy requirements such as failing to complete a financial management course, failing to provide tax documents, violating court orders, or transferring or hiding property with the intent to hinder the proceedings or defraud creditors.

Getting a Discharge

Bankruptcy courts generally issue Chapter 7 discharges 60 to 90 days after the first creditor's meeting unless someone files an objection. As long as the debtor has met all of the conditions of bankruptcy and no one objects to the discharge, he will receive a discharge of his eligible debts. Federal law requires the court clerk to send a notice of the discharge order to the affected creditors, though the notice does not list the specific debts that have been discharged. It merely makes a blanket statement that all dischargeable debts have been discharged.

Effect of Discharge

Once the court discharges a debt, creditors cannot attempt to collect on that debt. The debtor is no longer liable to pay it, though he can pay it if he chooses to do so. Creditors who continue to attempt to collect a discharged debt can be punished for violating a court order. While discharges are usually final, the court can revoke a discharge if it later discovers the discharge was obtained fraudulently or for other misconduct. For example, if the court later finds out that the debtor was hiding property and did not list all of his assets on the bankruptcy forms, they can revoke the discharge.

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New Jersey Chapter 13 Rules

References

Related articles

How Long to File Chapter 7 Bankruptcy If You Already Had One?

If you have previously filed for Chapter 7 bankruptcy, it is likely you will be entitled to file for a subsequent one. However, certain limitations affect who may refile and when. Typically, the waiting period is eight years between filings. If you previously filed but never received a discharge, the waiting period is typically much shorter.

Objections to Discharge Chapter 7

Most people who file for Chapter 7 bankruptcy are able to discharge the vast majority of their debts almost automatically. To prevent discharges from being granted for debts that are legally not subject to discharge or to debtors who don’t deserve them, creditors and other parties in interest have a period of time to file objections. Once an objection is filed, the matter must go before the bankruptcy court for a final decision before a discharge order will be entered.

Can Creditors Attempt to Get Money After a Discharge?

When you file a petition for bankruptcy, you are asking a federal court for protection from creditors and time to work out your financial difficulties. In a Chapter 7 case, the court authorizes a trustee to seize your assets and sell them in order to repay creditors. In a Chapter 13, the trustee sets up a repayment plan, taking into consideration your assets as well as your income. Unless the case is dismissed, both kinds of bankruptcy conclude with a cancellation of debts you owe to some — but not all — of your creditors.

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