• Home
  • Bankruptcy in Brief
  • ABC’s of Bankruptcy
  • Considering Bankruptcy
  • True Stories
  • Chapter 13
  • Blog
  • About
  • TOC

Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box
  • How bankruptcy works
  • Mortgage Matters
  • Consumer Rights
  • You & Your Lawyer
  • Small Business
  • Family Law

Can Debt Discharged In Bankruptcy Come Back To Haunt You?

By Cathy Moran

mummy-151304

Can debt bankruptcy in bankruptcy come back to haunt me?

Worried clients ask me this all the time, fearful that the relief they get from their creditors in bankruptcy is only temporary.

The short answer is no.

Debt that is discharged, wiped out, in your bankruptcy case is gone forever as a legal liability .

The automatic stay that stops collectors when you file bankruptcy is replaced, at the end of the case, with the discharge injunction.

But then, this is law, so nothing is quite that simple.

Bankruptcy discharges personal liability

Personal liability in law is personal to you. Liability isn’t based on your marital status, the marital laws of your state, or any other relationship. It follows you wherever you go.

The bankruptcy discharge eliminates your personal liability for dischargeable debts.

If there is no personal liability, your former creditor can’t sue you for money and get a judgment that allows it to levy your assets or garnish your wages.

Bankruptcy doesn’t automatically wipe out liens

The bankruptcy discharge wipes out the personal liability for a debt.  But liens that have attached to assets before the bankruptcy remain as a charge against those assets.

Perfected liens represent an interest in property, a claim to a piece of what you own.

The lien survives the bankruptcy.  The lien is only a claim on what you owned when the bankruptcy was filed.  It doesn’t attach to assets you acquire after bankruptcy.

A lien survives unless you get a bankruptcy court order that avoids the lien because it impairs an exemption you claimed in the bankruptcy case.

You need to file a motion to make that avoidance happen.  Which means you need to tell your bankruptcy lawyer that your creditor may have gotten a judgment and a judgment lien before your bankruptcy case was filed.

Was the debt discharged

Bankruptcy law carves out some debts that aren’t discharged in bankruptcy. Debts must be listed in your bankruptcy schedules to be discharged.  But, just because they are listed doesn’t mean they necessarily go away.

Debts that can’t be discharged include

  • child support,
  • recent taxes,
  • judgments for personal injury caused by drunk driving.

Unfortunately, the discharge order that is issued by the court at the end of a bankruptcy case doesn’t list the debts that are discharged.  It just says that the dischargeable debts are gone.

More on what debts were discharged

Does the creditor know you got a discharge

The reason that the bankruptcy paperwork requires that you list all your creditors with good mailing addresses is so they get the word when your discharge is entered.  Notice to creditors is also about due process:  remember from civics?

Creditors get notice so they can participate in the bankruptcy if there were to be a payment to creditors and so they can protest if they have grounds to think you shouldn’t get a discharge.

Once you get a discharge, the court mails a copy of the court’s order to everyone on the list of creditors you assembled at the beginning of the case.

A creditor left off the list, or to whom a debt is transferred after the bankruptcy filing, has no way of knowing that you’ve discharged your debts.

Notice of the bankruptcy isn’t everything

While the Bankruptcy Code says creditors who didn’t get notice of the bankruptcy case have a continuing claim against a debtor, courts have hedged that part of the law.

In the 9th Circuit, which includes California, a creditor with a straightforward dischargeable claim has that claim discharged even without notice, where the bankruptcy case provided no distribution to creditors. That’s the holding of Beezley.

Note, then, that in a no asset Chapter 7, where no creditor gets any money as a result of the bankruptcy, a creditor without notice gets wiped out.

But in Chapter 13, where there might be a tiny distribution to unsecured creditors, the creditor without notice keeps his claim.

So, the rule is:  

The debtor’s personal liability for a dischargeable claim is wiped out forever, if the creditor got notice or if there was no payment to creditors in the case.

Next time we’ll address what to do when you are contacted about a claim that has been discharged.

More

Does this violate my discharge?

When creditors call after bankruptcy

Liens after bankruptcy

Image courtesy of Pixabay.

More from the Soapbox

  • Inclusion in Bankruptcy Doesn’t Equal “Discharged”Inclusion in Bankruptcy Doesn’t Equal “Discharged”
  • Do I Have To File Bankruptcy Before There’s A Judgment?Do I Have To File Bankruptcy Before There’s A Judgment?
  • Bankruptcy Discharge For One Spouse Yields Benefits For Non-filing SpouseBankruptcy Discharge For One Spouse Yields Benefits For Non-filing Spouse
  • Who To Pay After BankruptcyWho To Pay After Bankruptcy
  • The Secret Bankruptcy Discharge For Community PropertyThe Secret Bankruptcy Discharge For Community Property

Filed Under: Consumer Rights, Life after bankruptcy Tagged With: after bankruptcy, debt collectors, discharge

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Bankruptcy Basics

About The Soapbox

You’ve arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said “try”).

Here, I allow myself to tell stories and express strong opinions. We dig deeper into how to consider bankruptcy and navigate a bankruptcy case.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

How Bankruptcy Works

Cheat Sheet For Passing Bankruptcy Means Test

The bankruptcy means test has a fatal weakness in its attempt to keep people out of bankruptcy. Like so much recently, it's health care. It's health care, in the future, to be paid before your creditors get any money in your bankruptcy. It works because, in a logic that only Congress could employ, the means … Read more

More Posts from this Category

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700
Phone: (650) 368-4700

Categories

All content copyright © Moran Law Group. All rights reserved.