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You Got Your Chapter 7 Bankruptcy Discharge! Congratulations! What's a Bankruptcy Discharge? Glad You Asked!

By Joseph McDaniel, Esq.

A discharge is a bit different in each of the multiple chapters of bankruptcy. That is, if you file a Chapter 7 Bankruptcy, you get your discharge, typically, about 100 days into the process, after you've filed the bankruptcy petition, IF you've gotten both of your consumer credit counseling thingies done and IF you showed up at the First Meeting of Creditors and IF you responded to The Trustee Letter by mailing the bankruptcy trustee the stuff she wanted.

BUT NOTE, NOTE, NOTE WELL: You won't actually RECEIVE your discharge in the mail until the Bankruptcy Court gets a Round Tuit, because mailing out your dischage is a fairly low priority task there. You may not see the discharge that was entered in your file for sixty or ninety days AFTER it was actually entered.

Just so you know!

There are a lot fewer discharges granted under Chapter 13, and then they're granted AFTER you get your plan confirmed, and AFTER you've made payments for three to five YEARS. So if you figure that there are a lot fewer Chapter 13 discharges rattling around out there, you'd be right.

And Chapter 11 cases are MOSTLY for businesses (although some people don't qualify for either a Chapter 7 OR a Chapter 13, so they could be stuck in a Chapter 11, but that's a darn expensive way to get through a bankruptcy, buddy!) and Chapter 12 cases are ONLY for family farmers (see the definition) and family fishermen, and we don't have a lot of family fishermen here in Arizona (see definition of "desert").

So most of the discharges that people get will be in Chapter 7 cases (a corporation doesn't get a discharge; it ceases to exist after its assets are liquidated and the money distributed and the case is closed for administrative purposes. That's to prevent "trading in corporate shells", according to the legislative history that I read thirty years ago).

And again, what is a Chapter 7 discharge in a bankruptcy case for a person or a married couple? Well, here's the definition from the Court website, which is a great reference:

"What is a discharge in bankruptcy?

A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien."

BUT WHAT DOES ALL THAT MEAN?

Patience, Debtor Grasshopper.

More tomorrow on the injunction created by the bankruptcy discharge in a Chapter 7 Bankruptcy in Arizona, and the EXCEPTIONS to the discharge, including the dreaded Homeowner's Association issues (darn those lobbyists!).

Full post as published by Arizona Bankruptcy Attorney Blog on April 01, 2010 (boomark / email).