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Why file for bankruptcy?

People I meet often ask, what is the goal to filing bankruptcy? Obviously, the goal is to eliminate debt, creditor harassment, judgments, garnishments, avoid foreclosure and many other reasons, but how does that happen? There are a lot of rules and procedures that go into the elimination of debt. First, upon filing any bankruptcy, the bankruptcy filer or debtor is given a Stay of further collection proceedings from creditors. This means all creditors are notified about the bankruptcy filing. Once notified, the Stay tells creditors that the bankruptcy court has stopped them from making any further collection efforts from that point forward. However, the Stay does not eliminate debt. It only keeps creditors from attempting to collect until the debt is formally discharged.

Soon after filing, the debtor must attend a hearing with a bankruptcy trustee. The chapter 7 trustee is a person, usually a lawyer, whose job it is to find any form of asset in which the trustee can sell or liquidate. Once available assets are liquidated, the trustee will pay the money that has been collected to the creditors. As a bankruptcy filer, you are given certain exemptions that will protect most, if not all, of your assets and possessions. In chapter 13 cases, the trustee is a facilitator. The trustee accepts a monthly payment from the debtor and in turn, distributes the funds to the creditors.

In most chapter 7 cases, the debtor will receive a discharge about 60 to 90 days after the hearing. The court will review the case looking for several things, 1 is that the debtor attended their hearing with the trustee and it was concluded by the trustee; 2 that the debtor took their second bankruptcy class called the Financial Management Course, which must be taken by all debtors in bankruptcy before a discharge may be issued by the court, and 3 that no creditors objected to the debtor receiving a discharge. If all three items are met, the court will automatically issue the discharge and mail it to the debtor with no further hearing or requirements by the debtor to receive it.

But what is the discharge?

A bankruptcy discharge is a court order that says all of the debt that is able to be discharged is then eliminated. The debtor’s legal obligation to pay the debt is forever cancelled. Creditors who were owed money no longer have any further right to collect money. You may pay back any loan voluntarily, if you choose to do so, but the creditor cannot force you to pay.

Soon after the discharge is entered, the trustee will notify the court if anything further is needed. All issues with the trustee must be resolved prior to the court closing out the case officially. The issuance of a chapter 7 discharge does not mean the case is closed.

What Debts Are Not Dischargeable?

There are typically four types of debts that are not dischargeable;

  1. Student loans are likely not going to be dischargeable. A debtor who wants to discharge student loans must file a separate action within the bankruptcy proceedings requesting a discharge of student loans.
  2. Recent tax debt is not dischargeable. Any tax debt that is owed within the last 3 years prior to filing the case will likely not be discharged.
  3. Any domestic support obligation like child support or spousal maintenance will not be dischargeable in bankruptcy. And…
  4. Court ordered fines or restitution will not be dischargeable.

What If a Creditor or the Trustee Objects to My Discharge?

In most cases, the chapter 7 trustee is looking for money or assets they can pay towards your debt. However, if the trustee requires documents or other information from the debtor and the debtor refuses to cooperate with the trustee, the chapter 7 trustee could ask the court to deny or revoke the discharge. The debtor has a duty to cooperate with the trustee and is required to provide any documents or information that the trustee requests. Creditors may have a legal right to object to your discharge if you have used the credit card within 90 days of filing bankruptcy. However, it’s not a complete denial of the discharge, it only would be for that specific creditor who objects.

Additionally, creditors could object to discharge. If a person took out the credit with no intention of ever repaying the debt, filing bankruptcy on the debt shortly after taking out the credit, or lying on their credit application. In any event, if there is an objection to discharge, the parties may be able to work out a settlement out of court, or go to trial to have the judge work out those issues.

If you are concerned about your right to a discharge or have questions about filing bankruptcy, call me today at 623-777-4760 or go to my website at www.gaudiosilaw.com. We can help you get through the bankruptcy process all the way to your successful chapter 7 discharge.