Definition
Discharge in Bankruptcy is a legal process where a bankrupt individual or entity is released from the obligation to repay certain debts. The discharged debts are no longer legally enforceable against the debtor, allowing them to achieve a ‘fresh start’. Not all debts can be discharged, and certain conditions and processes must be followed to obtain a discharge.
Examples
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Real Estate Developer: A real estate resort developer, who owned 2,000 unsold vacation lots and owed $2 million on land acquisition loans, files for bankruptcy. The court grants a discharge in bankruptcy for these loans, thus relieving the developer of the obligation to repay them, and permits the creditor to dispose of the lots.
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Individual Bankruptcy: An individual consumer owes $50,000 in credit card debt, $10,000 in medical bills, and $5,000 in overdue utility bills. After filing for Chapter 7 bankruptcy and following the required legal procedures, the court discharges these debts, allowing the individual to begin rebuilding their financial life.
Frequently Asked Questions (FAQs)
What debts can be discharged in bankruptcy?
Most consumer debts can be discharged, including credit card bills, medical bills, and personal loans. However, certain debts like student loans, alimony, child support, and certain tax liabilities are generally not dischargeable.
How long does the bankruptcy discharge process take?
The timeline varies depending on the type of bankruptcy filed. For example, a Chapter 7 bankruptcy typically takes about 4-6 months from filing to discharge. In contrast, a Chapter 13 bankruptcy may take 3-5 years due to the repayment plan involved.
Can a discharge in bankruptcy be revoked?
Yes, a discharge can be revoked if it’s found that the debtor obtained it fraudulently, such as through dishonesty or hiding assets. Creditors or the bankruptcy trustee may file a motion to revoke the discharge.
Does bankruptcy discharge affect my credit score?
Yes, a bankruptcy discharge will significantly impact your credit score, and it will remain on your credit report for 7-10 years depending on the type of bankruptcy filed. This can affect your ability to obtain credit, loans, and even housing.
Are there any alternatives to discharge in bankruptcy?
Alternatives include debt consolidation, debt settlement, or negotiating directly with creditors to establish a manageable payment plan without filing for bankruptcy.
Related Terms
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Bankruptcy: A legal process through which individuals or businesses unable to meet their debts can seek relief from some or all of their liabilities.
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Chapter 7 Bankruptcy: Also known as “liquidation bankruptcy,” where the debtor’s non-exempt assets are sold to pay creditors, and most remaining debts are discharged.
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Chapter 13 Bankruptcy: Known as a “wage earner’s plan,” it allows debtors to keep their property and pay debts over a 3 to 5 year period.
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Creditor: A party to whom money is owed by the debtor.
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Debtor: An individual or entity that owes money to a creditor.
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Insolvency: The financial state where an individual or entity cannot meet overdue debt obligations.
Online Resources
- United States Courts - Bankruptcy Basics
- Nolo - How Bankruptcy Works
- Consumer Financial Protection Bureau - Guide to Bankruptcy
References
- United States Bankruptcy Code
- “Understanding Bankruptcy: A Comprehensive Guide” – Legal Publications Corporation
- “Bankruptcy and Related Law in a Nutshell” by David G. Epstein
Suggested Books for Further Studies
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“The Law of Debtors and Creditors” by Elizabeth Warren and Jay Lawrence Westbrook
- A comprehensive analysis of bankruptcy, focusing on both creditor and debtor perspectives.
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“Bankruptcy Law and Practice” by Daniel R. Murray
- A practical guide to bankruptcy law, including case studies and examples.
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“The New Bankruptcy: Will It Work for You?” by Stephen Elias
- A consumer-focused guide that explains bankruptcy procedures and options.
