Definition§
Discharge in Bankruptcy is the release of a debtor from their legal obligation to pay certain types of debts following bankruptcy proceedings. This release frees the debtor from most of their provable debts, except for those liabilities that are exempt from discharge under bankruptcy laws. The discharge may be automatic in some cases or might require an application to the court, with the potential imposition of conditions such as future payments from the debtor’s income to creditors or suspension until the creditors receive a higher portion of the owed amount.
Key Elements:§
- Release from Debts: Upon discharge, the debtor is no longer legally required to pay the discharged debts.
- Conditions: The discharge may come with conditions like additional payments or suspension pending greater creditor compensation.
- Court Application: In non-automatic cases, the debtor or official receiver must apply to the court for an order of discharge.
- Exemptions: Certain debts are typically not discharged, including child support, alimony, and some tax obligations.
Examples§
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Automatic Discharge: John declares bankruptcy and, after the standard period passes, receives an automatic discharge, freeing him from most unsecured debts without needing to apply through the court.
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Court-Ordered Discharge with Conditions: Jane files for bankruptcy, and the official receiver applies to the court for an order of discharge. The court conditions the discharge on Jane making payments from her future income for five years to her creditors.
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Partial Discharge: David’s bankruptcy results in a partial discharge. Some of his debts are forgiven, but he remains obligated to pay specific nondischargeable debts, such as student loans.
Frequently Asked Questions (FAQs)§
1. What debts are typically not discharged in bankruptcy?
- Most tax obligations, alimony, child support, and student loans are commonly nondischargeable under bankruptcy laws.
2. What happens to the debtor after discharge?
- The debtor is relieved from the obligation to pay off discharged debts and can start rebuilding their financial health.
3. Can the discharge be revoked?
- Yes, a bankruptcy discharge can be revoked under certain circumstances, such as if the debtor committed fraud during the bankruptcy process.
4. Is a court hearing always required for discharge?
- No, in some cases, discharge can be automatic, but a court application is necessary in others.
5. Does discharge affect the debtor’s credit score?
- Yes, a bankruptcy discharge will typically lower the debtor’s credit score, though it marks a starting point for eventual recovery.
Related Terms§
- Bankruptcy: A legal procedure involving a person or business that is unable to repay their outstanding debts.
- Official Receiver: A person appointed by the court to manage the process of a bankruptcy or an estate.
- Order of Discharge: A court order that formally releases a debtor from debt obligations.
- Undischarged Bankrupt: A bankrupt individual who has not yet received a discharge and remains under certain financial disabilities and restrictions.
Online References§
- Investopedia: Bankruptcy Discharge
- US Courts: Bankruptcy Basics
- The Balance: Debts That Survive Bankruptcy
Suggested Books for Further Reading§
- Bankruptcy and Insolvency Law by Ian F. Fletcher
- The New Bankruptcy: Will It Work for You? by Stephen Elias and Albin Renauer J.D.
- Personal Finance After 50: Your Guide to Planning for Retirement, Investment, and the Next Chapter of Life by Eric Tyson and Bob Carlson
Accounting Basics: “Discharge in Bankruptcy” Fundamentals Quiz§
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