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Understanding the extent and limitations of the bankruptcy discharge

The bankruptcy discharge is not always automatic and does not apply to all debts.

If you are faced with overwhelming debts, you are probably looking for a way out. Although you have good intentions to repay your debt, you may find that you won't be able to unless you suddenly come into money. As a result, you may be considering bankruptcy, because you have heard that it can discharge your debt. However, this is not always the case. As a result, it is helpful to have an understanding of how the discharge works.

Basics of discharge

The discharge is the reason that most people file bankruptcy in the first place. After all, any discharged debt never has to be repaid and cannot be collected by creditors after the bankruptcy is over. Although you may think that the discharge is granted automatically as a matter of right, this does not always happen.

You may be surprised to hear that just because you file bankruptcy, there is no guarantee that a discharge of debt may be granted. In all cases, you must abide by bankruptcy rules and procedures to obtain a discharge. In Chapter 7 bankruptcy, your creditors have a right to object to a discharge of your debt within 60 days after the meeting of the creditors. Some of the reasons that your creditors may object include:

• You attempted to conceal, destroy or transfer your assets to defraud, delay or hinder your creditors

• You incurred the debt in question because of intentional or malicious injury to a person or property (i.e. certain personal injury verdicts)

• You failed to complete the credit counseling as required by law

• The debt involved fraud or deceit on your part

If your creditors are successful in their objections, the court may rule that some or all of your debt cannot be discharged. This means that the debt will survive your bankruptcy and must be repaid. Conversely, if the creditors do not object to the discharge (which is much more common), you will receive a discharge once Chapter 7 is completed.

In Chapter 13 bankruptcy, on the other hand, your creditors usually do not have the right to object to the discharge, since you are repaying many of your debts under a payment plan. In certain cases, creditors may object to the terms of the payment plan itself, but this is quite uncommon. In the overwhelming majority of cases, there are no objections and a discharge is granted once you have made your last payment pursuant to the terms of the plan.

Once granted, the discharge applies to a wide variety of debts. For example, most unsecured debts like credit cards, medical bills and personal loans end up discharged in both types of consumer bankruptcy. However, even if there are no creditor objections, certain types of debt are non-dischargeable under the bankruptcy laws. Such debts include:

• Most types of tax debt

• Student loans

• Debts arising out of personal injury or death caused by drunk driving

• Child support and alimony

• Penalties and fines that are owed to the government (e.g. traffic tickets)

• Any debts you could not discharge in a previous bankruptcy

Whether bankruptcy could help your particular situation is a complicated question requiring an analysis of the facts surrounding your finances. To learn more about the debt relief options available to you, contact an experienced bankruptcy attorney. An attorney can advise you on the best way to regain your financial footing.

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