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Do debtors have an absolute right to a discharge?

In previous posts, we've discussed how those individuals who make the decision to escape from otherwise crippling debt and secure a fresh financial start via Chapter 7 or Chapter 13 bankruptcy will ultimately do so via a legal mechanism known as a discharge.

To recap, a discharge is essentially a permanent legal order dictating that a bankruptcy filer is no longer required to cover the debts in question and which forbids creditors from taking any further collection actions relating to these debts.

One question that many people have regarding the discharge, however, is whether it is granted automatically or whether it can somehow be denied. As with many legal issues, the answer is that it depends.

Chapter 7   

In Chapter 7 cases, the discharge is by no means automatic, as creditors can file an objection.

Indeed, creditors will be provided with a notice of the bankruptcy filing that outlines, among other things, the date by which they must file an objection to the discharge in the bankruptcy court. If a creditor elects to do this, it will initiate a lawsuit referred to as an "adversary proceeding" in the Chapter 7 process.

It's worth noting that the bankruptcy court can elect to deny a discharge in Chapter 7 if it determines that the filer has committed certain acts outlined in the Bankruptcy Code, including:

  • Failing to account for the loss of assets
  • Failing to complete the mandatory course on personal financial management
  • Destroying or concealing records or books
  • Hiding or transferring property to delay or defraud creditors

Chapter 13

Chapter 13 filers are generally granted a discharge upon completion of their court-ordered repayment plan. In fact, in contrast to Chapter 7, creditors lack standing to object to the discharge if the filer has made all of the necessary payments.

The only potential problem for Chapter 13 filers is that they are ineligible for a discharge if they previously received one during either of the following timeframes:

  • In a Chapter 7, 11 or 12 case filed four years before the commencement of the current case
  • In a Chapter 13 case filed two years before the commencement of the current case

The purpose in sharing the forgoing information is not to cause unnecessary alarm, but rather to impress upon people why it's so important to consider speaking with an experienced legal professional who can examine their situation, explain the law and pursue viable debt relief solutions on their behalf.

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