What is Order of Discharge Chapter 7?
An order of discharge is a court order that discharges (eliminates) debts the creditor owed.
What is a Chapter 7 bankruptcy discharge?
A Chapter 7 bankruptcy discharge releases the debtor from personal liability for the debts. The creditor is barred from taking any action to collect the debt once a Chapter 7 discharge letter is issued by the bankruptcy court.
The creditor’s legal obligation to repay the debts is eliminated. The creditor does not have to repay the debts discharged in bankruptcy.
After a Chapter 7 discharge, can creditors attempt to get you to pay unpaid debts that were discharged?
As long as no fraud or misconduct occurred in connection with the bankruptcy filing or debts, the debts discharged during the Chapter 7 bankruptcy are not collectable by the creditor. Debts that can be discharged include:
- Accounts that were referred to a collection agency
- Credit card debts (including overdue charges and late fees)
- Personal loans from friends, family, credit unions, and employers
- Past due utility bills
- Unpaid medical bills
- Dishonored checks
- Business debts
- Limited student loans (requires proof of undue hardship)
- Deficiency balances resulting from repossession
- Auto accident claims (unless the claim involves drunk driving)
- Past due rent owed under lease agreements (includes past due rent)
- Civil court judgments (except judgments for fraud)
- Tax penalties and unpaid taxes past a certain number of years
- Attorney fees (excluding child support and alimony awards)
- Revolving charge accounts (except extended payment charges)
- Overpayments by social security
- Veteran’s assistance overpayments
What happens after Chapter 7 discharge?
A bankruptcy is supposed to give you a fresh start – a “do over” to begin your financial life unencumbered by debts that you cannot afford to pay. After discharge, you can begin making financial plans, budgets, and once again dreaming of a future without the weight of unsustainable debts weighing you down.
What happens to your credit rating after a Chapter 7 discharge?
Your credit rating will generally take a hit of 100 points or so when you file a Chapter 7 bankruptcy. As soon as the bankruptcy is discharged, you can begin rebuilding your credit. The discharged debts will remain on your credit report for up to seven years and the bankruptcy will remain for a decade.
What steps can you take to rebuild credit after a Chapter 7 discharge?
Recovering from bankruptcy Chapter 7 requires a commitment to build your credit. Common ways to improve your credit rating include using secured credit cards that you pay on time or buying something on credit that does not require a credit check and making timely payments.
If you are diligent about building your credit, your credit rating may be sufficient for you to purchase a house in about two years if you’ve saved enough for a down payment.
- If you have a mortgage, pay it before the due date.
- Monitor your credit reports at the credit agencies
- Take action to correct errors
- Get a secured credit card
- Get a credit builder loan
- Use a co-signer
- Pay your bills before the due date
Although it will not build your credit score, saving a nest egg is one way to increase your desirability to potential creditors. Another way is to build your skills and leverage them to increase your income with a new job or a side gig.
If you went into bankruptcy while your home was in foreclosure, what happens after the discharge?
If you are able to bring your mortgage payments current while the foreclosure is delayed by the bankruptcy, you will be able to keep your home if all your equity is protected by an exemption. If you are unable to bring the payments current and maintain them, you may still lose your home to foreclosure.
A Chapter 7 bankruptcy can provide you with time to sell your home to avoid a fire sale where you will lose equity in a foreclosure. Once the Chapter 7 bankruptcy is discharged, the foreclosure process after chapter 7 discharge allows your home loan to be foreclosed if your payments are not current.
What is included in a Chapter 7 discharge letter?
- Names of debtors
- Case number
- Court where bankruptcy was filed
- Debtor is entitled to a discharge
- Orders discharge of debts
- Date of the discharge
- Name of the judge
If a debt collector sends you a letter after you receive a Chapter 7 discharge, what can you do?
The Chapter 7 discharge letter also serves as an injunction that prohibits creditors from continuing collection attempts. 11 U.S. Code § 524 is a Federal law that applies when creditors attempt to collect discharged debts. Essentially, the discharge letter is a court order and creditors who continue collection efforts are in contempt of that court order. Contact a bankruptcy attorney for assistance if a creditor will not cease collection attempts.
Getting a letter from a debt collector after bankruptcy Chapter 7 indicates you should contact the creditor and let them know your debt was discharged in bankruptcy. If the creditor continues collection attempts after you advise them that the debt is discharged, you should contact a knowledgeable bankruptcy attorney nearby as the creditor is violating a court order.
If the creditor is deliberately ignoring the injunction against collection attempts, they may owe you restitution.
Do you still owe your creditor after a Chapter 7 bankruptcy is discharged?
If your debt was discharged under the Chapter 7 bankruptcy, you no longer owe the creditor any money.
Some debts are not dischargeable in a Chapter 7 bankruptcy although most of those debts do not involve creditors. The following obligations are not dischargeable.
- Family support payments including child support and alimony. This includes debts you owe to your former spouse or children as the result of a divorce settlement.
- Recent tax obligations (less than three years old)
- Old taxes if a return was not filed. Time is counted from the time the return is filed, not the due date.
- Payroll taxes withheld from an employee’s check that are due to the government.
- Judgments related to drunk driving including liabilities for injury or death stemming from operating a vehicle while impaired.
- Student loans (with rare exceptions)
- Money you borrowed in order to pay an obligation that was not dischargeable. For example, you cannot borrow to pay back child support and then discharge the debt in bankruptcy.
- Penalties the government imposes as fines or forfeitures that are punishments.
Can you reaffirm a debt when you file a Chapter 7 bankruptcy?
Yes, under certain conditions it is possible to reaffirm a debt. Reaffirming a debt means that you do not want that particular debt discharged and you are affirming your intention to continue to make payments on the debt. If you have equity in the asset, you must have an exemption to protect the equity or reaffirming the debt will not protect it from being sold to satisfy your debts.
Also, if you want to reaffirm a debt, your payments on the debt must be current.
Chapter 7 bankruptcy can be a complex process and mistakes can be costly and prevent you from getting the fresh start you need. Contact a knowledgeable bankruptcy attorney to help you through the process.