“D” is for discharge in my bankruptcy alphabet.
Getting a discharge of debts is the goal of most bankruptcies. The discharge is the court order, issued at the conclusion of a case, that wipes out the filer’s personal liability for most debts that existed when he began the case.
Not everything is discharged. The Bankruptcy Code lists a number of debts that will survive the proceeding. Some are nondischargeable just because of the nature of the debt: recent income taxes, family support, drunk driving judgments.
Some debts are non dischargeable only if the creditor files a timely adversary proceeding in the bankruptcy case and proves that his claim falls within those debts non dischargeable because of the debtor’s bad behavior: debts incurred by fraud, misrepresentation, breach of fiduciary duty, theft or willful and malicious injury.
Student loans are dischargeable only if the debtor brings a successful adversary proceeding to prove that repaying the debt imposes an undue hardship on the debtor and his family.
The discharge can be denied as to all of the debts if the debtor commits one of those all encompassing bad-acts: lies on the schedules, destroys or fails to keep appropriate records, or hinders the trustee’s work in the case.
Remember that the discharge eliminates the debtor’s personal liability for his debts. Personal liability is the exposure that a person has to having their wages garnished or their bank account levied to pay a judgment. Liens on assets survive the bankruptcy, but only as a charge on the asset.
A creditor with a lien on property of a debtor with a discharge can only take the property that is security for the debt. The lienholder cannot look to the debtor to make up any difference between the value of the property and the original debt. The discharge protects the debtor from that exposure.
Today’s explanation of bankruptcy was brought to you by the letter “D”.
In my friend Jay’s lexicon, D is for Debtor. What does he know?
Image courtesy of dumbledad.