When a person files for Chapter 7 bankruptcy, their intention is to have as many of their debts discharged as possible. But what exactly does it mean to have debts discharged?
When a debt is discharged in a Chapter 7 proceeding, a creditor is forever barred from initiating or continuing collection efforts. Therefore, if a creditor had sued the debtor for a past due debt prior to when the debtor filed bankruptcy, if the debt is discharged, the creditor can never collect on that debt. If a creditor does initiate or continue collection efforts on a debt that has been discharged in bankruptcy, they are in violation of the U.S. Bankruptcy Code and could face penalties and other sanctions.
It is important to note that not all debts are dischargeable in a Chapter 7 bankruptcy. First, in order to be considered for discharge, the debt had to be incurred prior to filling. Debts also have to be unsecured, meaning there is nothing for the creditor to take if the debt is discharged. Moreover, only debts that arose before a bankruptcy was filed are dischargeable. For example, if a debtor files for past due amounts on their electric bill, only the amount that was incurred prior to the bankruptcy filing can be discharged. New debt cannot be discharged.
Examples of the most common dischargeable debts include:
- Medical bills
- Credit card bills
- Past due amounts on utility bills
Conversely, debts secured by collateral, like home mortgages, are generally not dischargeable in bankruptcy unless the collateral securing the debt is surrendered to the creditor during the bankruptcy process. So, for example, if a debtor surrenders their home to their lender while a Chapter 7 bankruptcy is pending, they may simply walk away from the debt, since the debt is dischargeable after the house was surrendered.
The experienced bankruptcy attorneys at Morgan & Morgan work closely with their clients to ensure they benefit as much as possible from the Bankruptcy Code’s rules of dischargeability. Give us a call or contact us through our website to schedule a free initial consultation.