The ultimate benefit in bankruptcy proceedings is probably the discharge, or the permission from the bankruptcy court not to repay certain debts. The bankruptcy court eliminates these debts so that:
- The debt no longer legally needs to be repaid, and
- The creditors of that debt are not permitted to attempt to collect that debt.
There are other benefits to bankruptcy, of course, such as the automatic stay put in place by the Bankruptcy Court prohibiting many collection efforts of creditors from the time of the filing of the bankruptcy until further order of the court.
Timing of Discharge
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).
Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court.
Chapters 11, 12 and 13
In individual chapter 11 cases, and in cases under chapter 12 (adjustment of debts of a family farmer or fisherman) and 13 (adjustment of debts of an individual with regular income), the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan.
Since a chapter 12 or 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.
Denial of Discharge
The court may deny an individual debtor’s discharge in a chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.”
The Bankruptcy Code provides limited exceptions to the “financial management” requirement if the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.
Differences in Bankruptcy Code Chapters
Chapter 7 bankruptcy proceedings liquidate certain extravagant and non-essential assets to repay creditors and the rest of the dischargeable debt is eliminated, allowing for a fresh start. This is by far the most common type of bankruptcy filed.
Chapter 11 bankruptcy proceedings allow for a reorganization in order for future payments on the debt to be made.
Chapter 12 bankruptcy proceedings are intended to benefit family farmers and family fishermen. This is the least common type of bankruptcy filed among the above-listed four types.
Chapter 13 bankruptcy proceedings are intended to benefit people who have steady earnings from employment. This type of bankruptcy allows for repayment under a new plan as well.