One of several results from a bankruptcy case is the discharge of some or all debts owed by the debtor to creditors. This is not the only result, however. Repayment plans and reorganization will result from some forms of bankruptcy proceedings.
Not All Debt is Dischargeable
Additionally, not all debt is dischargeable. Many debts to the government are not dischargeable.
Most reasons for prohibiting discharge are based on public policy. Child support and alimony debts provide examples. Other examples include debts incurred fraudulently, or debts from injury caused maliciously by the debtor. There are different lists of nondischargeable debt for different types of bankruptcy filings.
Objections to Discharge
If there are no objections by the creditor or trustee to the discharge of debt, courts will often automatically discharge the debt.
However, after the initiation of a bankruptcy case, both creditors and the bankruptcy trustee are allowed to file objections to the discharge of debt.
A bankruptcy court must then determine whether to issue an injunction against the collection of debt based upon its determination of whether the debt is dischargeable.
The time during which creditors are allowed to object to the discharge of debt is limited.
If debt is discharged, creditors are informed they are not permitted to attempt to collect that debt any longer, and doing so may result in contempt of court.
Chapter 7 Discharge Revocation
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:
- 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.
Chapters 11, 12, and 13 Discharge Revocation
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.
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.