Discharge of debt is an order, or injunction on the collection of a debt, from the bankruptcy court. Not all debts may be discharged. The United States Bankruptcy Code contains lists or categories of debts that are not dischargeable. Typically the debts that are not dischargeable are set for public policy reasons. The types of debt most frequently not discharged are:
- tax debt to the government,
- student loan debt to the government,
- alimony payments,
- child support payments, and
- debt incurred based on harm to person or property due to the debtor’s malicious actions.
There are many other types of debt that are not dischargeable, however. In order to determine what debt is not dischargeable, a close review of the chapter under which the bankruptcy is filed and the United States Bankruptcy Code must be conducted.
One of the main benefits of bankruptcy for many individuals is the potential discharge of many or all of the individual’s debts. Not all debts are dischargeable, however. Public policy largely drives what debts have been deemed non-dischargeable in the law.
Debts such as child support obligations, spousal support obligations, and tax debts have been deemed non-dischargeable. Debts incurred fraudulently are non-dischargeable. Additionally, if a debtor fails to inform the bankruptcy court of a debt or of a creditor, that debt may not be discharged.
Creditor Objections to Discharge
Creditors are given an opportunity at the beginning of a bankruptcy case to object to the discharge of debts owed to that creditor. Such an objection creates an adversary proceeding.
Order Granting Discharge
Once debts are discharged by a bankruptcy court, creditors are informed that they are prohibited from contacting the debtors in order to obtain collection of the debt. Doing so will violate the court’s order and may subject the creditor to a sanction for contempt of court. This sanction will often be a fine.
Therefore, it is important for creditors to comply with the court’s rulings. Under certain circumstances, however, a creditor may still obtain repayment of a debt if the creditor can convince the court to revoke a discharge of debt.
Revocation of Discharge under Chapter 7
The court may revoke a discharge under certain circumstances. For example, a trustee, creditor, or the U.S. trustee may request that the court revoke the debtor’s discharge in a chapter 7 case based on allegations that the debtor either:
- obtained the discharge fraudulently;
- failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the bankruptcy estate;
- committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or
- failed to explain any misstatements discovered in an audit of the case or fails to provide documents or information requested in an audit of the case.
Typically, a request to revoke the debtor’s discharge must be filed within one year of the discharge or, in some cases, before the date that the case is closed. The court will decide whether such allegations are true and, if so, whether to revoke the discharge.
Revocation of Discharge under Chapter 11, 12, and 13
In chapter 11, 12, and 13 cases, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.
Voluntarily Payment after Discharge
A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced.
Sometimes a debtor agrees to repay a debt because it is owed to a family member to protect the debtor’s reputation.