Legal Definitions - bankruptcy discharge

A bankruptcy discharge is a formal legal order issued by a bankruptcy court that permanently releases a debtor (an individual or entity that owes money) from personal responsibility for most of their debts. This means that once a debt is discharged, the debtor is no longer legally obligated to pay it, and creditors are prohibited from taking any action to collect it.

Key aspects of a bankruptcy discharge include:

• Permanent Release: The discharge provides a fresh start by eliminating the debtor's legal obligation to pay specific debts forever.
• Creditor Prohibition: Creditors are legally barred from contacting the debtor, suing them, or attempting any other form of collection for discharged debts. Violating this prohibition can lead to penalties from the court.
• Specific Debts Only: Not all debts are eligible for discharge. Common examples of non-dischargeable debts include most student loans, certain taxes, child support, alimony, and debts incurred through fraud or willful and malicious injury.
• Secured Debts: While a bankruptcy discharge eliminates personal liability for a secured debt (like a mortgage or car loan), it generally does not eliminate the creditor's right to take back the property (collateral) if the debtor fails to make payments. The lien on the property usually remains.
• Automatic Process: In most bankruptcy cases, the discharge is granted automatically once the debtor has completed all requirements, unless a creditor or the bankruptcy trustee successfully objects.

Here are some examples illustrating how a bankruptcy discharge works:

• Example 1: Discharging Credit Card Debt and Personal Loans

  Imagine Sarah, who accumulated significant debt from credit cards and an unsecured personal loan after losing her job. She files for bankruptcy, and after completing the process, the court grants her a bankruptcy discharge. This means Sarah is no longer legally required to pay back the balances on those credit cards or the personal loan. The credit card companies and the loan provider cannot contact her, send her bills, or sue her to recover these discharged debts.

• Example 2: Protection Against Collection for Medical Bills

  Consider Mark, who incurred substantial medical bills following an unexpected illness. He files for bankruptcy, and these medical debts are included in his petition. Once Mark receives his bankruptcy discharge, the hospitals and clinics can no longer pursue him for payment of those specific medical bills. If a collection agency, perhaps unaware of the discharge, attempts to call Mark about these old debts, Mark can inform them of the discharge. If they persist in their collection efforts, Mark could report their actions to the bankruptcy court, which has the authority to sanction the collection agency for violating the discharge order.

• Example 3: Impact on a Secured Car Loan

  Suppose Emily files for bankruptcy, and one of her debts is a car loan. She decides she can no longer afford the monthly payments and chooses to surrender the vehicle. When Emily receives her bankruptcy discharge, her personal obligation to pay the car loan is eliminated. This means the car lender cannot sue her for any "deficiency" (the remaining balance if the car sells for less than what she owed after repossession). However, because the car loan was "secured" by the car itself, the lender still has the right to repossess the vehicle if Emily stops making payments, even after the discharge. The discharge relieves her of the personal debt, but not the lender's right to the collateral.