Understanding the Actual Nature of Bankruptcy Discharge

businessman doing his financial audit

Bankruptcy discharge is an odd nuance of a Chapter 13 filing in bankruptcy court. Most folks are familiar with the far more drastic version, Chapter 7 bankruptcy, where the court wipes out all debt after liquidating what’s left of a person’s property to pay off anything possible. Then the filer completes the process with no further obligation to pay anything but also with a seriously damaged credit rating and likely inability to borrow again for a number of years. In Chapter 13, however, the court instead sets a repayment plan that the filer has to follow. This approach focuses on restructuring the debt owed so that the filer can pay it down in a manner that is more doable for the filer’s circumstances.

bankruptcy discharge

Discharge Applied

When the filer does reach the end of the repayment plan and has fulfilled other obligations the court requires, then the court can decide to discharge the remaining debt that still applies. When discharged, the court essentially uses its power to erase the remaining debt. Doing so, none of the lenders involved can then try to collect on the outstanding amounts. They are legally erased. The only way such debts can come back is if the filer agrees to obligate himself to the debts again after the bankruptcy filing is closed and completed by the court. These are odd situations, but they do occur, usually because the lender offers a bigger loan to the filer at a time when they have no ability to borrow for years afterwards. And in modern life, that can be a serious restriction according to many bankruptcy attorneys DC experts.

The court can place requirements that a filer has to meet in addition to the payment plan as well. Typically, these are applied to help teach the filer not to make the same financial mistakes again. They usually involve some time of training or personal finance management class, staying out of financial trouble for least a few years prior to the current filing, sticking to a set spending plan to learn how to practice financial discipline or similar. Once completed, and there are no other legal restrictions to deal with, then the court can apply a discharge and free the filer by court order for anything outstanding.

The Consequences of the Discharge Order

The effect of such a discharge is binding on any debt identified to the court during the bankruptcy. Once applied, that lender has no legal ability to apply a collection after the fact. If they tried, such an attempt would get thrown out of court and might even cause a sanction on the lender for a frivolous legal filing when they should know better.

The Chapter 13 discharge is not all-encompassing, however. Certain categories of debt still stay in place due to federal law that exempts them from bankruptcy proceedings. These include things like child support, alimony, criminal penalties, student loans, some taxes, government penalties and similar.

Post-Chapter 13 Plan Implementation

In some circumstances, the filer isn’t able to maintain the court’s plan to meet all the obligations due. Things just get worse, and it becomes apparent the court’s restructuring won’t be successful. In these circumstances, the filer has the option to go back to the court and request a hardship discharge. In these situations, the court reviews the matter to confirm whether, in fact, the filer really has no ability to continue. For example, the filer gets seriously sick or becomes disabled and regular income-earning work is no longer possible. When satisfied that:

 1) the situation is beyond anything the filer can control

2) the plan can’t be changed to make it work

3) the lenders involved received as much as they would have under a Chapter 7 filing

Then the court can choose to discharge the rest of the filer’s outstanding debt under a hardship decision.

Rely on A Bankruptcy Lawyer in DC Versus Going Solo

There is no question from the above that a DC bankruptcy can be complicated, under any filing. This is why an expert like the Law Offices of Kim Parker is needed. The benefits of chapter 13 bankruptcy are available, but they are not a slam dunk after an initial filing. A good DC bankruptcy lawyer is needed to navigate the proceedings, and trying to do so without one can be a big mistake. Call the Law Offices of Kim Parker to handle your case if you need a DC bankruptcy attorney now.

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