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  Murrieta | Temecula bankruptcy attorney Karen E. Lockhart

Frequently Asked Questions

1. What is a discharge in bankruptcy?

Under the federal bankruptcy statute, a discharge releases you (AKA debtor) from personal liability for certain specified types of debts. In other words, you are no longer required to pay any debts that are discharged.

The discharge operates as a permanent order directing your creditors to refrain from taking any form of collection action on discharged debts, including legal action and communications with you such as telephone calls, letters and personal contacts.

Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. In other words, if you car is still under financing, the lender can repossess the vehicle.

2. When does the discharge occur?

The timing of the discharge varies, depending on the chapter under which the case is filed. In a chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the 341 meeting).

In cases under chapter 13 (adjustment of debts of an individual with regular income), the court grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since a chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing.

3. How do I (debtor) get a discharge?

Unless there is litigation involving objections to the discharge, you'll automatically receive a discharge.

The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the United States trustee, the trustee in the case, and the Trusteeࡴtorney, if any. You and your attorney (if used) also receive copies of the discharge order.

The notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection.

They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge.

IMPORTANT NOTE: Keep your discharge notice in a safe and secure location for a minimum of 21 years! Why? You could be contacted years later by collectors trying to collect on debts that were discharged. You can then simply send them a copy of the discharge notice to stop their annoying calls.

4. Are all debts discharged?

Not all debts are discharged!

Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted to individual debtors.

Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as driving under the influence of alcohol or drugs or criminal activity).

There are 18 categories of debt excepted from discharge under chapters 7, 11, and 12. The following are the most common . . .

  • Alimony
  • Child maintenance and support obligations
  • Certain taxes
  • Debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit
  • Debts for willful and malicious injury by the debtor to another entity or to the property of another entity
  • Debts for death or personal injury caused by the debtor௰eration of a motor vehicle while the debtor was intoxicated from alcohol or other substances
  • Debts for criminal restitution orders under title 18, United States Code

A more limited list of exceptions applies to cases under chapter 13.

Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies.

The most common types of non-dischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor௰eration of a motor vehicle while intoxicated, and debts for certain condominium or cooperative housing fees.

The types of debts described in sections 523(a)(2), (4), (6), and (15) (obligations affected by fraud or maliciousness or certain debts incurred in connection with property settlements arising out of a separation agreement or divorce decree) are not automatically excepted from discharge.

Creditors must ask the court to determine that these debts are excepted from discharge. In the absence of an affirmative request by the creditor and subsequent granting of the request by the court, the types of debts set out in sections 523(a) (2), (4), (6), and (15) will be discharged.

A broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7 case. As a general rule, the chapter 13 debtor is discharged from all debts provided for by the plan except certain long-term obligations (such as a home mortgage), debts for alimony or child support, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor࣯nviction of a crime.

Although a chapter 13 debtor discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor͊ control.

The scope of a chapter 13 Ფship discharge?is similar to that in a chapter 7 case with regard to the types of debts that are excepted from the discharge.

5. Does the debtor have the right to a discharge or can creditors object to the discharge?

In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the debtorऩscharge may be filed by a creditor, by the trustee in the case, or by the United States trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge.

A creditor who desires to object to the debtorऩscharge must do so by filing a complaint in the bankruptcy court before the deadline set out in the notice. Filing of a complaint starts a lawsuit referred to in bankruptcy as an 䶥rsary proceeding?

A chapter 7 discharge may be denied for any of the reasons described in section 727(a) of the Bankruptcy Code, including the transfer or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order; or an earlier discharge in a chapter 7 or 11 case commenced within six years before the date the petition was filed.

If the issue of the debtor಩ght to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.

In chapter 13 cases, the debtor is entitled to a discharge upon completion of all payments under the plan. The Bankruptcy Code does not provide grounds for objecting to the discharge of a chapter 13 debtor.

Creditors can object to confirmation of the repayment plan, but cannot object to the discharge if the debtor has completed making plan payments.

6. Can a debtor receive a second discharge in a later chapter 7 case?

A discharge will be denied in a later chapter 7 case if the debtor has been granted a discharge under chapter 7 or chapter 11 in a case filed within six years before the second petition is filed. The debtor will also be denied a chapter 7 discharge if he or she previously was granted a discharge in a chapter 12 or chapter 13 case filed within six years before the date of the filing of the second case unless:

(1) all the 쬯wed unsecured?claims in the earlier case were paid in full, or

(2) payments under the plan in the earlier case totaled at least 70 percent of the allowed unsecured claims and the debtorబan was proposed in good faith and the payments represented the debtorࢥst effort.

7. Can the discharge be revoked?

A discharge can be revoked under certain circumstances. For instance, a trustee, creditor, or the United States trustee may request that the court revoke the debtorऩscharge in a chapter 7 case based on:

1) allegations that the debtor obtained the discharge fraudulently;

2) the debtor failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the bankruptcy estate or;

3) the debtor committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code.

Typically, a request to revoke the debtorऩscharge must be filed within one year after the granting of the discharge or, in some cases, before the date that the case is closed. It is up to the court to determine whether such allegations are true and, if so, to revoke the discharge.

In a chapter 13 case, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.

8. May the debtor pay a discharged debt after the bankruptcy case has been concluded?

A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtorಥputation is important, such as a family doctor.

9. What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?

If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated.

The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.

10. Can an employer terminate a debtor७ployment solely because the person was a debtor or failed to repay a discharged debt?

The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case.

The law prohibits the following forms of governmental discrimination:

1) terminating an employee;

2) discriminating with respect to hiring;

3) or denying, revoking, suspending, or declining renew a license, franchise, or similar privilege.

A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.

11. What are the advantages of bankruptcy?

Once discharged through bankruptcy your debts are erased; in other words you are no longer responsible for paying them.

12. What about my credit?

The fact is that when lenders or other creditors review your credit report they rank bankruptcy as the worst.

13. How long do I have to wait to rebuild my credit?

You can rebuild your credit immediately with a secured loan or credit card. In fact you can even obtain these items while going through the bankruptcy process.

14. How long does it take before my debt are discharged?

Chapter 7 takes between 3 to 8 months;

Chapter 13 can take several months while trying to get your repayment plan approved. However, the actual discharge is not final until you've met the payment plan requirements which takes from 36 to 60 months to complete.

15. How long until my credit gets back to the point where I might hope to get a regular credit card or mortgage?

Rebuilding credit depends on how aggressively you try to get back on track, but don't figure less than 1-3 years. Remember, you can always get a secured credit card or a mortgage with a low loan to value (LTV) and high interest rate, sometimes even still in the middle of a bankruptcy.

16. How would I know if Chapter 7 is right for my situation?

If you have very few assets with no property and your assets can be exempted then Chapter 7 may be right for you as long as you have no other obligations such as court ordered alimony, child support payments, criminal restitution, non-dischargeable taxes, or student loans. (list of non-dischargeable items) Many national creditors prefer that you file Chapter 7 if they cannot recover at least 50 cents on the dollar.

17. Which bankruptcy chapter is the least expensive?

Chapter 7 is the least expensive because you do not have to pay off the debts. The next least expensive is Chapter 13 where you repay about 10 cents on the dollar, followed by Chapter 11.

18. Can I pick and choose which assets to put into a personal bankruptcy?

No. Every asset you own must be included in the filing. After filing you may choose to exempt some of your assets.

19. So I exempted my vehicle, what happens to it?

You didn't actually exempt the vehicle (or any asset) you really only exempted the equity (if any) in the asset . So, if you have a loan for $17,000 on a vehicle worth $20,000 then you exempt $3,000. However this does not mean you get to keep the car free. You only keep the vehicle if you make payments on it.

On the other hand, if the situation was reversed and you owed $20,000 on a vehicle worth only $17,000 then you could choose to simply give the vehicle back and owe nothing. One of the advantages to filing bankruptcy.

20. What exactly can I exempt?

It depends on which state you live in. Most states allow the Federal exemptions but also have state exemptions that may be more favorable. California has two different exemptions. You must chose one.

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The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a bankruptcy attorney regarding your individual situation. Murrieta | Temecula bankruptcy attorney Karen E. Lockhart welcomes your phone calls and emails. Contacting us does not create an attorney-client relationship. Do NOT send confidential information to us until an attorney-client relationship has been established.

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