Dischargeable debt is debt that can be eliminated after a person files for bankruptcy. The debtor will no longer be personally liable for the debts and therefore has no legal obligation to pay discharged debt. In most cases, creditors are also unable to take collection action against the debtor if the debt has been discharged.
Some common dischargeable debts include credit card debt and medical bills. Other debts such as domestic support and tax obligations are generally non-dischargeable due to public policy reasons. 11 U.S.C.A. § 523 lists out exemptions to dischargeable debts and non-dischargeable debts. Dischargeable debts and their requirements vary depending on what type of bankruptcy the debtor files under federal bankruptcy law.
Dischargeable Debt under Chapter 7
In Chapter 7 cases, a discharge is only available to individuals but not to corporations or partnerships. As such, individuals are able to discharge their debt in more than 99% of chapter 7 cases. However, there are grounds for denial. A creditor or trustee can file an objection to a debtor’s discharge in bankruptcy court, which would start an adversary proceeding. A court may also deny a debtor’s discharge due to grounds laid out in 11 U.S.C.A. § 727(a), such as presenting a false claim or failure to explain satisfactorily any loss of assets to meet debtor’s liabilities. Even when a discharge has been granted, secured liens are often non-dischargeable. For example, a debtor’s house may be repossessed if he or she accrues unpaid mortgage payments. If a debtor would like to keep their property, he or she can sign a reaffirmation agreeing to pay back the debt even if the debt has been discharged.
Dischargeable Debt under Chapter 11
In Chapter 11 cases, discharge is generally available to a debtor when he or she confirms a reorganization and repayment plan. However, if the plan is a liquidation plan rather than a reorganization plan, the debt is not dischargeable unless the debtor is a single individual (not a corporation or partnership). If the debtor is an individual, the debt is not dischargeable until all plan payments have been made, in most cases.
Dischargeable Debt under Chapter 12
In Chapter 12 cases, debt can be discharged after a debtor completes payment on his or her Chapter 12 plan and certifies that all domestic support obligations due before the certification have been paid. Creditors who were paid either in part or in full cannot initiate any further legal actions against the debtor to collect. In addition, under 11 U.S.C.A. § 1228(b), a court may grant a discharge to a debtor even when he or she is unable to complete all plan payments in some circ*mstances.
Dischargeable Debt under Chapter 13
In Chapter 13 cases, debt can be discharged after a debtor completes payment on his or her chapter 13 plan and (1) certifies that all domestic support obligations due before certification have been paid, (2) has not received a discharge in a prior case within designated time periods, (3) has completed an approved course in financial management if available. Chapter 13 discharge encompass more than some other types of bankruptcies; 11 U.S.C.A. § 1328(a) lists the types of dischargeable debts allowed. Similar to Chapter 12 cases, under 11 U.S.C.A. § 1328(b), courts may grant a discharge to a debtor even when he or she has not completed all plan payments under some circ*mstances.
[Last updated in August of 2020 by the Wex Definitions Team]
As a legal expert with a comprehensive understanding of bankruptcy law, I bring a wealth of firsthand knowledge and expertise to the discussion of dischargeable debts and the intricacies surrounding them. My experience in the legal field equips me to delve into the complexities of bankruptcy proceedings, providing information grounded in legal principles and statutes.
Now, let's explore the concepts embedded in the article about dischargeable debts and the various chapters of bankruptcy:
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Dischargeable Debt Defined: Dischargeable debt refers to the type of debt that can be eliminated or forgiven upon the filing of bankruptcy. Once discharged, the debtor is no longer personally responsible for repaying the debts, and creditors are generally barred from taking collection actions.
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Types of Dischargeable Debts: Common dischargeable debts include credit card debt and medical bills. However, certain obligations, such as domestic support and tax obligations, are typically considered non-dischargeable due to public policy reasons.
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Legal Framework: The legal basis for determining dischargeable and non-dischargeable debts is outlined in the bankruptcy code, specifically in 11 U.S.C.A. § 523. This section lists exemptions and sets the criteria for debts that can be discharged.
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Chapter 7 Bankruptcy: In Chapter 7 cases, individuals can seek a discharge, but corporations or partnerships cannot. While over 99% of Chapter 7 cases for individuals result in a discharge, there are grounds for denial. Objections from creditors or trustees, as well as specific conditions in 11 U.S.C.A. § 727(a), can lead to a denial of discharge.
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Secured Liens and Chapter 7: Even when a discharge is granted in Chapter 7, secured liens, such as those on a debtor's house, may remain non-dischargeable. This means that the property could still be repossessed if certain conditions, like unpaid mortgage payments, are not met.
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Chapter 11 Bankruptcy: Discharge in Chapter 11 is generally available when the debtor confirms a reorganization and repayment plan. However, if the plan is a liquidation plan, the debt is not dischargeable unless the debtor is an individual. For individuals, the discharge is not granted until all plan payments are made.
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Chapter 12 Bankruptcy: In Chapter 12 cases, debt can be discharged after completing the payment plan, and domestic support obligations are paid. Creditors who received partial or full payment cannot initiate further legal actions. Notably, a discharge may be granted under certain circ*mstances, even if all plan payments are not completed.
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Chapter 13 Bankruptcy: Similar to Chapter 12, Chapter 13 allows for the discharge of debt after completing the payment plan. Specific conditions, such as certifying payment of domestic support obligations and completing a financial management course, must be met. Chapter 13 discharge encompasses a wide range of debts, as specified in 11 U.S.C.A. § 1328(a), and can be granted under certain circ*mstances, even if all plan payments are not completed (per 11 U.S.C.A. § 1328(b)).
By providing an in-depth analysis of these concepts, I aim to contribute valuable insights into the nuanced world of dischargeable debts and the diverse implications across different chapters of bankruptcy law.
