Ten Tips About the Discharge of Debts in a Chapter 7 Liquidation Bankruptcy

1. A discharge in Chapter 7 eliminates a debtor’s obligation to pay creditors the debt that has been discharged by the court.
2. A discharge does not determine how much creditors will receive from the trustee appointed in the case.
3. A discharge prohibits creditors from attempting to collect the debt in the future from the debtor.
4. There are specific rules that also protect certain community property owned by the debtor’s spouse in community property states.
5. A creditor that tries to collect a discharged debt may be required by the Bankruptcy Court to pay damages as well as attorney’s fees to the debtor.
6. This would not apply to debts that the Court decided would not be discharged.
7. This rule against contacting the discharged debtor would also not apply if the debtor signed a reaffirmation agreement that was fully compliant with the bankruptcy rules.
8. The law governing discharge of debts in Chapter 7 bankruptcy is complex.
9. Credit professionals are not expected to understand discharge and the rules governing discharge completely.
10. When issues arise about a creditor’s rights or what is and is not permissible, credit professionals would be well advised to consult with an attorney.

© 2011 by Michael C. Dennis.  All Rights Reserved