What is a discharge in bankruptcy?

What happens if you declare bankruptcy is that a court decides which debts you must pay and which ones will be discharged. A bankruptcy discharge is a court order that releases a debtor from personal liability for certain sums owed. It means you are no longer legally required to repay the debt. This is a crucial component of what bankruptcies do; they offer people a fresh financial start.

When you receive a discharge, creditors can no longer pursue payment.

What debts can be discharged in bankruptcy?

Discharged debts are typically unsecured, meaning they are not backed by collateral. Unsecured debt includes:

Credit card debt
Medical bills
Personal loans
Utility bills
Some student loans
Most tax debts

When you file for bankruptcy, these debts can be wiped out, freeing you from the obligation to repay them.

In a Chapter 7, most unsecured debts will be discharged entirely right away. What happens to debt when you file Chapter 13 bankruptcy is slightly different. In Chapter 13 bankruptcy, you enter into a repayment plan lasting three to five years, where you repay a portion of everything you owe. Once you’ve completed the repayment plan, any remaining debts will be discharged.

Bankruptcy does not discharge student loans, including federal student loans, except under limited circumstances. To qualify for such a discharge, you will have to prove in an adversary proceeding that paying the loan causes undue hardship – that you cannot pay the loan and maintain a minimal standard of living. In November of 2022, the United States Department of Justice implemented new guidelines, making it easier to prove undue hardship.

You may be able to discharge certain federal, state, or local taxes if they are from several years back. Income tax debt cannot be discharged without a special exemption, but you may be able to arrange a payment plan or installment agreement with the IRS. If the issue is income tax, talk to a tax attorney before filing.

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What debts are not discharged in bankruptcy?

Does bankruptcy clear all debt? No, it does not. Certain types of debt cannot be discharged and must still be paid. The specifics vary depending on if you file Chapter 7 or Chapter 13 bankruptcy. In general, nondischargeable debts include:

Secured debt
Most student loans
Certain tax debt
Child support
Spousal support
Debts resulting from fraud
Debts from willful and malicious injury
Court fines or penalties
Criminal restitution
Debts not discharged in a prior bankruptcy
Debts you forgot to list in your bankruptcy petition (unless the creditor learns of your bankruptcy case)
Debts from personal injury caused by the debtor’s operation of a motor vehicle while intoxicated

Bankruptcy takes care of unsecured debt like credit card debt. If you have secured debt like car loans or a mortgage, you will have to continue pay or risk losing the collateral. There are exceptions, and it matters if you file for Chapter 13 or Chapter 7. Chapter 7 may require liquidation of certain assets, while Chapter 13 allows for a repayment plan to keep your property. It’s essential to discuss your case with an attorney before filing to fully understand what is covered and the implications for your specific situation.

Bankruptcy does not discharge certain obligations. You are still obliged to pay fines imposed by court judgments or owed to the federal government.

If you have federal student loans, while they are generally non-dischargeable, you may be eligible for alternative relief options such as loan forgiveness, an income based repayment plan, or temporarily deferred or reduced payments due to financial difficulties.

Knowing bankruptcy’s limitations can help you better prepare for the process and manage your financial future more effectively.

Should you file for bankruptcy if you can’t discharge all of your debt?

Bankruptcy filing can still be a viable option, even if you cannot discharge everything you owe. While certain obligations like student loans and child support will remain, eliminating credit card debt, personal loans, and medical bills can significantly reduce your overall debt burden. This reduction can mean that you now have enough income to better manage your remaining payments and give you breathing room. It’s important to evaluate your financial situation and what type of debt you have. Consult with a financial advisor or bankruptcy attorney to determine if this step is right for you.

Bankruptcy can stop creditor harassment and collection activities

Bankruptcy can also provide immediate relief from creditor harassment and collection activities. Once you file, an automatic stay goes into effect. This stay prevents creditors and debt collectors from contacting you, initiating a lawsuit, or implementing wage garnishments. This legal protection can give you the necessary breathing room to reorganize your finances.

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What is the downside of filing for bankruptcy?

The bankruptcy process is not to be taken lightly. Yes, it can provide significant relief, but it also comes with notable downsides.

One major disadvantage is the long-term negative impact on your credit score. Chapter 7 bankruptcy remains on your credit report for up to 10 years, and Chapter 13 for up to 7 years. This negative mark will make it difficult to borrow money in the near future. When you are finally able to secure new credit, the loans and credit cards you’re offered will come with less favorable terms, including higher interest rates.

Another downside is the potential loss of property. In Chapter 7, your non-essential assets will be sold to repay dues. Chapter 13 bankruptcy protects assets, but you must adhere to a strict court-approved payment plan for three to five years.

Moreover, what you cannot do after filing for bankruptcy includes obtaining new lines of credit immediately and making large purchases without court approval if you’re in a Chapter 13 repayment plan.

Does the debtor have the right to a discharge or can creditors object to the discharge?

Debtors generally have the right to a discharge, but creditors can object under certain circumstances. The creditor or the bankruptcy trustee may file an objection if they believe the debtor has engaged in fraudulent activity, such as hiding assets or providing false information. If the bankruptcy court finds merit in these objections, it may deny the discharge for the specific debt or the entire bankruptcy case. Therefore, it is crucial to provide accurate and complete information throughout to avoid objections and ensure a smoother path to debt relief.

Can a debtor receive a second discharge in a later Chapter 7 case?

A debtor can receive a second discharge in a later Chapter 7 case, but certain time restrictions apply. Specifically, a debtor must wait eight years from the filing date of the previous Chapter 7 to be eligible for another discharge. This waiting period is designed to prevent abuse of the system. Repeated filings within a short period can lead to dismissal and loss of discharge eligibility.

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What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?

If a creditor attempts to collect a discharged debt after the case is concluded, the debtor can file a motion with the court to report the violation. The court may impose sanctions on the creditor for ignoring the discharge order. Documenting all communications from the creditor and consulting with an attorney can help ensure the debtor’s rights are protected and appropriate actions are taken to stop the harassment.

May the debtor pay a discharged debt after the bankruptcy case has been concluded?

Yes, a debtor may voluntarily pay a discharged debt. Some debtors choose to repay in order to maintain relationships with specific creditors or out of a sense of moral obligation. These payments are entirely voluntary and cannot be enforced by the creditor.

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Frequently asked questions

1. Which of the following can not be discharged by filing bankruptcy?

The following debts cannot be discharged: student loans, most tax obligations, child support, alimony, and debts incurred through fraud or malicious actions. Additionally, court fines and penalties, as well as personal injury debts from driving under the influence (DUI), remain the debtor’s responsibility.

2. How can the debtor obtain another copy of the discharge order?

To obtain another copy of the discharge order, the debtor can contact the bankruptcy court where the case was filed. Most courts offer copies for a small fee. Alternatively, the debtor can request a copy from their bankruptcy attorney or access it through the court’s online system, PACER (Public Access to Court Electronic Records), if available.

Bottom line

Bankruptcy can help eradicate unmanageable debt, but it is not without its limitations. Neither Chapter 7 nor Chapter 13 forgive all that you owe; your credit score will take a big hit, and you will not be able to secure new lines of credit any time soon.

Despite these issues, bankruptcy remains a powerful debt relief tool. It can release you of any obligation to pay any outstanding debts, giving you a fresh financial start.

Before you choose to go this route, it’s important to fully understand the process, the types of debts involved, and the long-term implications. Talk to an attorney or credit counselor. They can help you make the best decision for your financial future and navigate the path to recovery more effectively.

1. Paycheck Advance is For eligible customers only. Your actual available Paycheck Advance amount will be displayed to you in the mobile app and may change from time to time. Conditions and eligibility may vary and are subject to change at any time, at the sole discretion of Finco Advance LLC, which offers this optional feature. Finco Advance LLC is a financial technology company, not a bank. Expedited disbursement of your Paycheck Advance is an optional feature that is subject to an Instant Access Fee and may not be available to all users. Expedited disbursements may take up to an hour. For more information, please refer to Paycheck Advance Terms and Conditions.

2. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC, and Cross River Bank, Member FDIC. The Current Visa® Debit Card is issued by Choice Financial Group pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. The Current Visa® secured charge card is issued by Cross River Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted. Please see the back of your Card for its issuing bank. Current Individual Account required to apply for the Current Visa® secured charge card. Independent approval required.

3. Individual results may vary. Using your credit card responsibly may allow you to improve your credit score. Credit building depends on various factors, including your payment history, credit utilization, length of credit history, and other financial activities.

4. Faster access to funds is based on comparison of traditional banking policies and deposit of paper checks from employers and government agencies versus deposits made electronically. Direct deposit and earlier availability of funds is subject to timing of payer’s submission of deposits.

5. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Funds held in Savings Pods are FDIC-insured on a pass-through basis up to $250,000 at our partner bank Choice Financial Group, member FDIC

6. Actual overdraft amount may vary and is subject to change at any time, at Current’s sole discretion. In order to qualify and enroll in the Fee-Free Overdraft feature, you must receive $500 or more in Qualifying Deposits into your Current Account over the preceding 30-day period. For more information, please refer to Fee-free Overdraft Terms and Conditions.

7. You may earn Points in connection with your everyday spending and by completing other actions that Current designates as subject to the Current Points Program. The amount of Points granted for different actions as well as the purchase requirements necessary to earn Points will vary, and is subject to Current’s sole discretion. After qualifying, please allow 3-5 business days for points to post to your Current account. The Current Points program is not available to Teen Account holders. See Current Points Terms and Conditions.

8. Some fees may apply, including out of network ATM fees of $2.50 per transaction, late payment fees of 3% of any total due balance outstanding and past due for two or more billing cycles, foreign transaction fees of 3% of the full transaction amount (minimum $0.50), card replacement fees per card of $5 for regular delivery and $30 for expedited delivery, cash deposit fees of $3.50 per deposit, and third party processing fees.

9. Boost Bonuses are credited to your Savings Pods within 48 hours of enabling the Boost feature and on a daily basis thereafter, provided that the Savings Pod has accrued a Boost Bonus of at least $0.01. The Boost rate on Savings Pods is variable and may change at any time. The disclosed rate is effective as of August 1, 2023. Must have $0.01 in Savings Pods to earn a Boost rate of either 0.25% or 4.00% annually on the portion of balances up to $2000 per Savings Pod, up to $6000 total. The remaining balance earns 0.00%. A qualifying direct deposit of $200 or more is required for 4.00%. No minimum balance required. For more information, please refer to Current Boost Terms and Conditions.

10. Cryptocurrency services are powered by Zero Hash LLC and Zero Hash Liquidity Services LLC, and may not be available in all states. Terms and conditions apply. When you buy or sell cryptocurrency, a difference between the current market price and the price you buy or sell that asset for is called a spread. However, unlike most other exchanges Current does not charge an additional trading fee. Cryptocurrency transactions are a form of investment, and all investments are subject to investment risks, including possible loss of the principal amount invested. Cryptocurrency is not insured by the FDIC or any other government-backed or third-party insurance. Your purchase of cryptocurrency is not a deposit or other obligation of, or guaranteed by, Choice Financial Group or Cross River Bank. The cryptocurrency assets in your Zero Hash account are not held at Current, Choice Financial Group, or Cross River Bank. Current, Choice Financial Group, and Cross River Bank are not responsible for the cryptocurrency assets held in any Zero Hash account. Neither Current, Choice, nor Cross River Bank is involved in the purchase, sale, exchange of fiat funds for cryptocurrency, or custody of the cryptocurrencies. Terms and Conditions apply (platform and user agreements). Crypto on Current is not currently available in HI. Licensed to engage in Virtual Currency Business Activity by the New York State Department of Financial Services. This does not constitute investment advice.

11. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Your money is FDIC-insured on a pass-through basis up to $250,000 at each of our partner banks, Choice Financial Group and Cross River Bank, members FDIC.

12. Average value based on Fine Hotels + Resorts bookings in 2023 for stays of two nights. Benefits include daily breakfast for two, room upgrade upon arrival when available, $100 amenity, guaranteed 4PM late checkout, and noon check-in when available. Certain room categories not eligible for upgrade. $100 amenity varies by property. Actual value will vary based on property, room rate, upgrade availability, and use of benefits.

13. Up to $500 per Covered Trip that is delayed for more than 6 hours; and 2 claims per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

14. The maximum benefit amount for Trip Cancellation and Interruption Insurance is $10,000 per Covered Trip and $20,000 per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

15. Baggage Insurance Plan coverage can be in effect for Covered Persons for eligible lost, damaged, or stolen Baggage during their travel on a Common Carrier Vehicle (e.g. plane, train, ship, or bus) when the Entire Fare for a ticket for the trip (one- way or round-trip) is charged to an Eligible Card. Coverage can be provided for up to $2,000 for checked Baggage and up to a combined maximum of $3,000 for checked and carry-on baggage, in excess of coverage provided by the Common Carrier. The coverage is also subject to a $3,000 aggregate limit per Covered Trip. For New York State residents, there is a $2,000 per bag/suitcase limit for each Covered Person with a $10,000 aggregate maximum for all Covered Persons per Covered Trip. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

16. Car Rental Loss and Damage Insurance can provide coverage up to $75,000 for theft of or damage to most rental vehicles when you use your eligible Card to reserve and pay for the entire eligible vehicle rental and decline the collision damage waiver or similar option offered by the Commercial Car Rental Company. This product provides secondary coverage and does not include liability coverage. Not all vehicle types or rentals are covered. Geographic restrictions apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company. Car Rental Loss or Damage Coverage is offered through American Express Travel Related Services Company, Inc.

17. Coverage for a Stolen or damaged Eligible Cellular Wireless Telephone is subject to the terms, conditions, exclusions, and limits of liability of this benefit. The maximum liability is $800, per claim, per Eligible Card Account. Each claim is subject to a $50 deductible. Coverage is limited to two (2) claims per Eligible Card Account per 12 month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

18. When an American Express® Card Member charges a Covered Purchase to an Eligible Card, Extended Warranty§ can provide up to one extra year added to the Original Manufacturer’s Warranty. Applies to warranties of five (5) years or less. Coverage is up to the actual amount charged to your Card for the item up to a maximum of $10,000; not to exceed $50,000 per Card Member account per calendar year. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

19. Purchase Protection is an embedded benefit of your Card Membership and requires no enrollment. It can help protect Covered Purchases made on your Eligible Card when they’re accidentally damaged, stolen, or lost, for up to 90 days from the Covered Purchase date. The coverage is limited to up to $10,000 per occurrence, up to $50,000 per Card Member account per calendar year. Coverage Limits Apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

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21. The secured Chime Credit Builder Visa® Card is issued by Stride Bank, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted.

22. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A., Members FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted.

23. The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of September 20, 2023. No minimum balance required. Must have $0.01 in savings to earn interest.

24. There’s no fee for the Chime Savings Account. Cash withdrawal and Third-party fees may apply to Chime Checking Accounts. You must have a Chime Checking Account to open a Chime Savings Account.

25. To apply for Credit Builder, you must have received a single qualifying direct deposit of $200 or more to your Chime Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit OR Original Credit Transaction (OCT). Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time direct deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.

26. Money added to Credit Builder will be held in a secured account as collateral for your Credit Builder Visa card, which means you can spend up to this amount on your card. This is money you can use to pay off your charges at the end of every month.

27. Based on a representative study conducted by Experian®, members who made their first purchase with Credit Builder between June 2020 and October 2020 observed an average FICO® Score 8 increase of 30 points after approximately 8 months. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.

28. On-time payment history may have a positive impact on your credit score. Late payment may negatively impact your credit score. Chime will report your activities to Transunion®, Experian®, and Equifax®. Impact on your credit may vary, as Credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.

29. Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.

30. SpotMe® on Debit is an optional, no fee overdraft service attached to your Chime Checking Account. To qualify for the SpotMe on Debit service, you must receive $200 or more in qualifying direct deposits to your Chime Checking Account each month and have activated your Visa debit card. Qualifying members will be allowed to overdraw their Chime Checking Account for up to $20 on debit card purchases and cash withdrawals initially but may later be eligible for a higher limit of up to $200 or more based on Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. The SpotMe on Debit limit will be displayed within the Chime mobile app and is subject to change at any time, at Chime’s sole discretion. Although Chime does not charge any overdraft fees for SpotMe on Debit, there may be out-of-network or third-party fees associated with ATM transactions. SpotMe on Debit will not cover any non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. SpotMe on Debit Terms and Conditions.

31. Tipping or not tipping has no impact on your eligibility for SpotMe®.

32. Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.

33. Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.

34. Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.

35. Mobile Check Deposit eligibility is determined by Chime in its sole discretion and may be granted based on various factors including, but not limited to, a member’s direct deposit enrollment status.

36. Funds are automatically debited from your Checking Account and typically deposited into the recipient’s Checking Account within seconds. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed.

37. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed. Non-Chime members must use a valid debit card to claim funds.

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Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

Which Debts Can’t Be Discharged in Bankruptcy?

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