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Bankruptcy - Chapter 7 - Discharge of Debts

Bankruptcy - Chapter 7 - Discharge of Debts

BANKRUPTCY: Chapter 7 - Discharge of Debts: What debts are discharged?

Q. What debts are discharged in a Chapter 7 Bankruptcy?

•A. In some ways it is easier to describe what is not discharged in a Chapter 7 Bankruptcy than to state what is discharged. Basically, a discharge is the release of the debtor from the personal liability for the repayment of his or her debts. Most common unsecured debts (credit card debt, medical bills, past due rent, personal loans, etc.) are discharged. The personal liability for repayment of most secured debts is discharged (but, again, not the lien or security interest in the property).

Q. What debts are not discharged in a Chapter 7 Bankruptcy?

A. There are two primary classifications of debts which are not discharged in a bankruptcy case. First, debts which are not discharged, and the creditor does not have to do anything to protect its interest. Second, debts which are discharged unless the creditor takes action(s) in the bankruptcy case to assert that the debt should not be discharged.

i. Non-dischargeable Debts. This type of debt is automatically not discharged even if the creditor does nothing. The most common of these types of debts are child support and other domestic support obligations, student loans, and taxes for recent years. Debts which are not listed in the bankruptcy documents are also not discharged. (Note: You should consult an attorney concerning the potential for the discharge of tax debts.)

ii. Debts that are discharged unless the creditor takes Court action. If the creditor is notified, and does nothing, then the debt is included in the discharge of the debtor. The most common of these types of debt are:

•a. Debts incurred by fraud, false pretenses or false representation debtors' financial condition;

•b. Debts for the aggregate purchase of "luxury goods or services" from one creditor in excess of $500.00 within 90 days before filing;

•c. Debts cash advances or loans for more than $750.00 within 70 days before filing; and,

•d. Debts for willful or malicious acts.

Q. Does a discharge release a lien or security interest on my car or house?

•A. NO. It does not release the debtor's property from the claim or right to possession of a valid security interest, lien or mortgage held by a creditor. Judicial liens based on certain consumer credit judgments can be avoided if a Motion to Avoid is filed.

Q. When will the Discharge Order be issued?

A. There is no specific answer to this question because each case is different. In the "typical" case, a discharge will be granted about 4 months after the case is filed. For this to occur, the Creditors Meeting must be held and concluded, the time for the filing of creditor's Objections to Discharge must expire, the Trustee must abandon or otherwise handle any claim the bankruptcy estate has to debtor's assets, and the debtor must timely file a Certificate of Completion of the Financial Management Course. If there are open issues in the case, a granting of a discharge will be delayed.

Q. Are income tax debts discharged in a Chapter 7 Bankrutpcy?

A. NO BUT SOMETIMES YES. Debts for taxes are generally not dischargeable in bankruptcy. However, income taxes may be dischargeable under certain narrowly defined conditions. The taxes must be:

i. For a tax year the return for which was due (including filed extensions) at least three years prior to the date of filing of the bankruptcy petition; and,

ii. A tax return was filed by the debtor at least two years prior to the filing of the bankruptcy petition; and,

iii. No tax assessment has been made for that tax year in the 240 days (plus certain extension periods) before the filing of the bankruptcy petition.

Due to the complexity of determining whether or not a tax debt is discharged, it is good practice to file a Complaint to Determine Dischargeability of the tax debt as a separate proceeding in your bankruptcy case.

A lien for income taxes which has been filed with the Clerk of the Superior Court prior to the filing of the bankruptcy case is not released remains a lien or secured claim on any property to which it has affixed even if the personal liability for the tax debt is found to be dischargeable.

Q. Can student loans ever be discharged?

A. In very limited "hardship" situations, the personal liability for repayment of student loans can be discharged. The economic hardship of repaying the debt must be very severe and generally must be of a permanent nature. You must file a Motion to Determine Dischargeability.

Contacting the Right Attorney: Bankruptcy can be a complicated matter. The responses to these Frequently Asked Questions are general in nature, and are not intended to provide legal advice for specific cases. A consultation with a Georgia bankruptcy attorney can provide you with the information you need to determine which option best addresses your circumstances. As a solo practitioner, I am able to give more time and personalized attention to my clients. I will personally communicate with creditors or banks to resolve your issues. Your case will never be handed down to a legal assistant or other staff member.

NOTICE: The services or benefits offered are bankruptcy relief under the provisions of the U.S. Bankruptcy Code. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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