Aside from a few exceptional circumstances, Chapter 7 and Chapter 13 bankruptcies conclude with the bankruptcy court entering a discharge order, which is just a duplexed document with most of the important info on the back side. Its brevity, however, should not be confused with its power. Reading through the official form version can be illuminating for debtors.
For instance, the first thing it says on the back is that debtor’s case is not over. This can trip people up because the discharge is debtors’ moment of victory, so it’s understandable to be concerned that there’s more to be done. At this point though, most of the action is on the trustee’s side, such as ensuring all the eligible assets that can be liquidated and distributed to the creditors have in fact been liquidated and distributed. The trustee must also recover all preferences and fraudulently transferred assets. In most Chapter 7 cases, the time between the discharge and the case closing won’t be long. It can be longer if there are more assets and creditors involved.
The discharge order also informs debtors that collection efforts by their former creditors are strictly prohibited and can result in substantial penalties for the creditors. It also warns debtors that although the debts are discharged, any liens attached to any property are not stripped. This can lead to some confusion among debtors: What’s the point of discharging debts if you still have to pay on them to keep a piece of property? That’s the point of attaching liens to property, to ensure payment on the debts. Debtors can, however, file a Chapter 13 bankruptcy for the sole goal of stripping a lien on a discharged second or lower mortgage.
As a minor note, debtors are allowed to pay debts to creditors if they want to. This is common for debts owed to friends and family members, not so much banks. As a piece of advice, because payments on discharged debts don’t get reported to any of the credit bureaus, it’s worthwhile to ask for receipts for each payment. It can help convince subsequent lenders that you are creditworthy.
What the discharge order does not say is which specific debts have been discharged. This might appear alarming at first because it raises the question of how a debtor is supposed to show a creditor violating the discharge order that the debt in question is discharged. It also doesn’t help that the debt might not have been discharged per the subsequent ten-item list. The discharged debts are the ones that weren’t deemed nondischargeable and were listed in the debtor’s bankruptcy petition. All the debtor needs to do is look at that and a subsequent credit report to ensure the debts have been listed as discharged.
For more questions about discharging debts, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy lawyer Bruce Weiner for a free initial consultation.
