Discharge is an important term in bankruptcy, and is a particularly important part of Chapter 7 bankruptcy. In recent posts, we’ve been discussing some of the considerations that need to be taken into account when deciding which form of bankruptcy is right for one’s circumstances. Differences in discharge are one such consideration.
Discharge works differently under Chapter 7 and Chapter 13 bankruptcy, and this should be understood before deciding how to file. In Chapter 13 bankruptcy, discharge is less extensive than in Chapter, but it is broader than in Chapter 7. In Chapter 13, discharge includes debts connected to divorce or separation property settlements agreements, debts taken on to pay off non-dischargeable tax debt, and debts incurred for certain types of property damage. Chapter 7 excludes such debts.
In Chapter 13 bankruptcy, discharge is ordinarily only available after the debtor has completed his or her court-supervised repayment plan. Creditors can object to confirmation of the repayment plan, but once the repayment plan is completed, creditors don’t have the ability to oppose discharge. That being said, it may be possible in some cases for a debtor to receive a “hardship discharge” without having completed the repayment plan, in which case the scope of dischargeable debts is narrower–similar to that of Chapter 7 discharge.
One important factor to consider is that a debtor does not have an absolute right to discharge in a Chapter 7 case. Creditors in a Chapter 7 case do have the ability to oppose the discharge of debts, and the scope of discharge is more limited. Depending on a debtor’s debt profile, this could be an important factor. If a creditor opposes discharge, the debtor is forced to go through an adversary proceeding, and this can involve extra time and cost.
In determining which form of bankruptcy is best for one’s situation, it is important, of course, to consult an experienced bankruptcy law attorney to have the debtor’s specific circumstances evaluated, to explore the options, and to ensure that everything is done correctly.