Bankruptcy promises a financial “fresh start,” an opportunity to start over without the burdens of oppressive debt. The debtor obtains a fresh start from a discharge of debts at the end of his or her bankruptcy case. Unfortunately, there is a lot of bad information being passed around about the scope of the bankruptcy discharge. Below are a few common bankruptcy discharge myths:
The Bankruptcy Discharges All Debts
While the bankruptcy discharge applies to most debts, there are certain categories that are “excepted” from discharge. The federal bankruptcy code lists 21 categories of debts that are excepted from discharge, including student loans, taxes, and child support. In some cases a debt may be presumed not dischargeable unless the debtor petitions the court to find that the debt can be included in the discharge order. In other cases a debt may be presumed dischargeable unless a creditor objects and the court finds the debt excluded from the discharge order.
The Bankruptcy Discharge Erases Your Debts
The bankruptcy discharge is a permanent court injunction that prohibits a creditor from trying to collect from the debtor. The debt still exists, but is no longer legally collectible. However, this injunction only applies to collecting from the debtor, and does not prohibit a creditor from collecting from any other person legally responsible for the debt. For instance, if your brother co-signed for a personal loan that was included in your bankruptcy discharge, the creditor may still collect from your brother.
Bankruptcy Eliminates Property Liens
In some cases the bankruptcy court can “avoid” a lien on property. However, unless the bankruptcy court specifically avoids a property lien, the lien survives the bankruptcy. In other words, you cannot discharge a house mortgage and still keep the house after bankruptcy. Bankruptcy’s general rule for property secured by a lien is that the debtor must pay for the property or return it. That said, there are many options to keep property during bankruptcy.
The bankruptcy discharge is a powerful legal protection, but only if you understand its scope and limitations. Call attorney Eron Epstein at 423-752-3000 for a free consultation and learn how the federal bankruptcy law can provide you with a fresh financial start.
Written by: Rebecca Kidd