Tag Archive: discharge


This discharge entered by the court in a bankruptcy case is the golden rod of every bankruptcy – the thing every debtor needs and/or wants in order to get their life back on track and enjoy their fresh start.  The discharge order is the court order that tells your creditors that they are prohibited by federal law from ever attempting to collect discharged debt from you again.  Getting a discharge is different from having the case dismissed – in fact – having the case dismissed is actually a bad thing.  It means that you did not get your discharge, and it may affect the automatic stay in a future filing.  So, to recap my point up to here: Dismissal is bad – discharge is good.  It is NOT however, the end all-be all of your case.

See, Congress actually had a little bit of foresight when the figured out this system:  They realized that the discharge is the order that protects the debtor, and they realized that the asset administration of the case can take quite some time. Under normal circumstances it would neither be fair, nor good for the debtor to have to wait for the trustee to finish up the case administration before a discharge is entered.

If you remember your Chapter 7 basics, a Chapter 7 bankruptcy is a ‘liquidation bankruptcy’ and it is the trustee’s job to review your schedules and statements to determine whether you have any assets that are not protected by law that he has to liquidate in order to pay your creditors.  Well, you can imagine that while that may be easy-breezy for most Chapter 7 debtors – it can take quite some time for others, and the same rules apply to all.  Furthermore, as part of the asset administration in your case, the trustee can keep the case open to wait for your tax return to be filed.

This is why there are two tracks and here they are:

  1. Discharge Track: If you fulfill all requirements to be eligible for a discharge (in short: pre-filing counseling, eligible for Chapter 7, post-filing counseling, attendance of 341 Meeting of Creditors) then the court will enter your discharge approximately 90 days after your creditors meeting has been concluded.
  2. Case Administration Track: Your trustee can make a determination that there are not assets in your case and file a “Report of No Distribution.”  If so, your case will be closed by the court shortly after the discharge has been entered.  However, if the trustee does not file this report, and he is working on liquidating your assets, or working on figuring out whether there are any assets, then you case will likely stay open for a little while longer after the discharge has been entered.  He may even ask you for some additional information during that time, and it is your duty to cooperate with the trustee.

The main things to keep in mind during case administration process are (a) the trustee has the power to ask the court to revoke your discharge if you are not cooperating with him; and (b) don’t forget the big picture:  Yes it may be temporarily painful to give up most or all of your tax refund, or to pay for the privilege of keeping a non-protected asset – but that is usually a small price to pay when compared to the tens or hundreds of thousands of $$$ you are discharging.

In summary, once your discharge is entered the main hurdles have been met, and the main goal has been reached, but your case is not yet closed.  The court will enter a separate case closed order at a later time and only then is your case truly and unequivocally “done.”

Advertisements

The above statement, or some variation thereof, is something that as a bankruptcy attorney I hear a lot.  And it is not really a surprise – a lot of people today find that they have a particular problem with one thing (think mortgage), but are really ok as far as everything else is concerned.  Of course, every now and then the variation on this statement goes something like “I shop at Kohl’s a lot, so I don’t want to include them in the bankruptcy, just all of the other stuff”. 

The misconception lays in the word ‘include’.  It is really not an appropriate word to use in the context of bankruptcy.  When you file for bankruptcy relief ALL OF YOUR DEBTS must be listed.  No ifs, ands or buts about it.  Just like all of your assets must be listed.  So in the sense of listing your creditors, and notifying them of your filing, everything must be ‘included.’   

Here is where it gets complicated, though.  Just because a debt is ‘included’ in the sense that it was listed on your petition, does not necessarily mean the debt will be discharged.  For example, student loans and certain tax debts are not dischargeable.  They have to be listed, and for all intents and purposes they are ‘included’…..BUT, they are not included in the debts that are discharged.  Other debts that are ‘included’ but not discharged, are those debts that you reaffirm during your bankruptcy, so you can keep the collateral (usually for a car). 

Now, if you have a credit card that has a zero balance, you do not own a debt to that particular creditor and it does not have to be listed on your petition.  It is NOT  good idea, however, to pay off that Kohl’s card so you don’t have to list it, because eventually Kohls – or whoever – will discover that you filed for bankruptcy relief, and even though you did not owe them any money at the time of your filing, they will likely either raise your APR, lower your balance, or shut down your card altogether. 

In short, EVERYTHING is included in your bankruptcy in one way or another.  Talk to your attorney to make sure you understand what this means for you.

Anyone who files for bankruptcy relief has to attend a Section 341 Meeting of Creditors (or Creditors Meeting).  This is a requirement under the bankruptcy code, and a debtor will not receive his discharge if he fails to appear at the date and time set for his creditors meeting.  Instead, his case will be dismissed, and the debtor has to re-file and face the consequences associated with that.

Now, the creditors meeting sounds like a pretty scary concept. For one, you have to go to the bankruptcy court for it.  Two, it’s called the ‘creditors meeting’!! Your creditors are the reason why you are here in the first place, and many of you have had just about enough of them.  All in all, though,  it is not that scary, and 9 out of 10 of my clients walk out of their creditors meeting going “that was it?”. 

As I said, the code mandates that a creditors meeting takes place. This process is virtually the same for Chapter 7 debtors as well as Chapter 13 debtors.   The court schedules the date and time of your creditors meeting after your petition has been filed and a trustee has been assigned to your case.  This date can only be changed in extraordinary circumstances, and I typically recommend not changing it, as delaying your creditors meeting inevitably means a delay of your discharge.  The date is approximately 30 days after your petition has been filed.  As your attorney, I get notified via email within about 24 – 48 hours of the exact time and date.  Within a few days after that, the official Notice of Creditors Meeting is sent not only to you, but to all of your creditors as well. 

In Arizona, the appointments are set in half-hour increments, and each half-hour portion of the day is assigned to a number of different cases filed in the same Chapter.  This of course means that (a) your creditors meeting is neither private nor confidential, but (b) all the other folks there are there for the same reason you are: To avail yourself of the relief granted to you by the bankruptcy code. 

While the creditors meeting may take place in the actual court building, it is not held in the court room, and the judge will not be there.  Instead, the trustee assigned to your case runs the show.  On your appointed time, you will enter the room along with your attorney, and all the other debtors assigned for the same time slot. The trustee will call your name and you are then required to provide him with a photo id as well as proof of your social security number (i.e. your social security card).

The trustee then swears you in.  The law requires that the trustee asks you a number of questions under oath.  This is important, because even if you have to discuss something that may cause your case to hiccup a bit with the trustee, doing so is really the only option that you have: Perjury – or lying under oath – is a crime – and whatever the hiccup, it’s not worth it.  The standard questions the trustee asks are always pretty much the same.  A few examples include:

  • Have you assisted in the preparation of the petition and schedules filed in your case?
  • Is all the information true and accurate? 
  • How long have you lived in Arizona?
  • Have you ever filed for bankruptcy before?

You know, standard stuff – things your attorney can talk to you about before the creditors meeting ever takes place, if only to calm your nerves.  Once that portion of the questioning is done, the trustee then has the chance to ask you any other questions he may have about the information contained in your schedules. These questions are typically related to your assets, such as ‘how did you come up with the value for that grandfather clock’ or ‘what is your interest in the XYZ partnership exactly, and what kind of returns are you expecting’.  These questions are a little harder to predict, as they are based on your specific case, but a good attorney will know how to issue spot your petition and give you an idea of what kind of questions might be expected, if any.

Now, about the creditors…. it is called a creditors meeting after all.  The bottom line on that is they have the right to appear and question you under oath, but they hardly ever do.  I have only had one instance of a creditor showing up, and that was coordinate the surrender of my clients vehicle.  Now, I am not saying they never show up – it happens and it can happen to you.  In the event that it does, just remember to stay calm, TRUTHFULLY answer all of their questions (as you are still under oath) and don’t forget to breathe. 

Remember, no matter how scary, stressful or frustrating this feels right now, you will likely be relieved when the meeting is over, and wonder why you were so worried in the first place.

  The discharge, in general, operates as an injunction against any act to collect an obligation of the debtor that existed on or before the date of filing of this case, with some exceptions. The discharge does not enjoin the collection of taxes not less than three years old on the date of filing for which returns have been filed, other taxes of a shorter period, the collection of student loans for which no finding of hardship has been made, or debts as to which the court has made an order of non-dischargeability.

In plain English, it is a court order that prevents all of your creditors from ever attempting to collect the debt you owed before filing – no one can ever ask you to pay on that debt again, and if they do, they can be sanctioned.  Now, there are some exceptions, as noted above.  The most common ones are most tax debts, and pretty much any student loan debts.  Finally, any debts that you reaffirmed are excepted from the discharge.  Orders of non-dischargeability as mentioned above are fairly rare – such orders typically happen when a creditor can show that you incurred a debt with the intent to discharge the debt. 

In short, the discharge is the key to your fresh start.  It frees you from the burden of debt and allows you to focus on rebuilding your financial future.