Discharge - Law Firm Arnold & New Attorneys Jacksonville, Florida

Jacksonville Florida Debt Discharged Through Bankruptcy

The Chapter 7 Discharge

A Chapter 7 discharge releases individual debtors from personal liability for most debts and prevents the creditors that are owed such debts from engaging any collection actions against the debtor. However, since a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing a bankruptcy petition to discuss the scope of the discharge. Generally, the discharge rate is quite high. With the exception of cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In fact, in most cases, unless a party in interest files a complaint objecting to the discharge or a motion extending the time to object, the bankruptcy court will issue a discharge order relatively early in the case – generally, 60 to 90 days after the meeting of creditors.

The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow in scope and are construed against the moving party. According to Rule 4005, Federal Rules of Bankruptcy Procedure, the court may deny a debtor a discharge if it finds that the debtor:

Failed to keep or produce adequate books or financial records;
Failed to explain satisfactorily any loss of assets
Committed a bankruptcy crime such as perjury;
Failed to obey a lawful order of the bankruptcy court;
Fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or
Failed to complete an approved instructional course concerning financial management.

While unsecured creditors have no rights against a debtor after a discharge, secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. However, depending on individual circumstances, a debtor may “reaffirm” secured debt to keep certain secured property (such as an automobile and/or house). A reaffirmation is a contract between the debtor and the creditor whereby the debtor pledges that he will remain liable for the underlying debt even though the debt would otherwise be discharged in the bankruptcy proceeding. In return for the debtor’s promise to pay, the creditor promises that it will not repossess or take back the secured property so long as the debtor continues to pay the debt.

If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered by signing and filing a written reaffirmation agreement with the court. Because of the risk of reaffirmation agreements (debtors’ promising to pay debt that would otherwise be discharged), the Bankruptcy Code requires reaffirmation agreements to contain an extensive set of disclosures as set forth in 11 U.S.C. § 524(k). Among other things, the disclosures must advise the debtor of the amount of the debt being reaffirmed and how it was calculated and that the reaffirmation means that the debtor will remain personally liable for that debt after the bankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the debtor has the ability to pay the amount of the reaffirmed debt. If the debtor’s income is not sufficient to pay the debt to be reaffirmed, a presumption of undue hardship arises, and the court may decide not to approve the reaffirmation agreement. Further, unless the debtor is represented by an attorney, the bankruptcy judge must approve the reaffirmation agreement.

An attorney is also under certain requirements regarding reaffirmation agreements. Specifically, where a debtor is represented by an attorney in connection with the reaffirmation agreement, the attorney must certify in writing that he or she advised the debtor of the legal ramifications of the reaffirmation agreement, including a possible default under the agreement. The attorney must also certify that the debtor was fully informed and voluntarily entered into the agreement and that reaffirmation of the debt will not create an undue hardship for the debtor and/or the debtor's dependants. If a debtor is represented by an attorney during the reaffirmation process, a hearing is not required unless the court disapproves of the reaffirmation agreement. Lastly, a debtor may always repay any debt voluntarily, whether or not a reaffirmation agreement exists; however, some secured creditors may not follow this procedure and may require a reaffirmation agreement to be executed.

An individual receives a discharge for the majority of his or her debts in a Chapter 7 bankruptcy case and creditors may not initiate or continue any legal or other action against the debtor to collect such discharged debt. However, not all of an individual's debts are discharged in a Chapter 7 proceeding. Such debts that are not dischargeable include: (1) debts for alimony and child support; (2) certain tax obligations; (3) debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit; (4) debts for willful and malicious injury by the debtor to another entity or to the property of another entity; (5) debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances; and (6) debts for certain criminal restitution orders. As such, a debtor will continue to be liable for these types of debts to the extent that they are not paid in the Chapter 7 proceeding. In addition to the above, the following debts may also not be discharged if a creditor timely files an objection to discharge: (1) debts for money or property obtained by false pretenses; (2) debts for fraud or defalcation while acting in a fiduciary capacity; and (3) debts for willful and malicious injury by the debtor to another entity or to the property of another entity.

Once a discharge is granted by the court, the debtor is free of dischargeable debt unless the court revokes the discharge. Although this occurrence is rare, the court may revoke a Chapter 7 discharge at the request of the trustee and/or a creditor for any of the following: (1) if the discharge was obtained through fraud by the debtor; (2) if the debtor acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender the property to the trustee; or (3) if the debtor (without a satisfactory explanation) makes a material misstatement or fails to provide documents or other information in connection with an audit of the debtor's petition.

Portions of the above have been taken from the US Courts website regarding Chapter 7 basics.

Please see other pages that we have on Chapter 7 bankruptcies, including:

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