At the end of a Chapter 7 bankruptcy an individual can receive his or her discharge. A Chapter 7 bankruptcy completes in about 3-4 months. The discharge means that all debts that are considered dischargeable are eliminated or forgiven as of the date of the bankruptcy filing. A discharge injunction comes into effect which means that a creditor cannot collect or take any action on discharged debts. While the case was pending there was stay in effect. The discharge makes that stay permanent. Note that a pre-petition lien can survive the discharge. Liens include mortgages, home equity lines, and judgment liens. In certain instances, judgment liens can be avoided as part of the Chapter 7 filing. A motion has to be filed and a court order avoiding the lien has to be obtained. Failure to do so can result in the case having to be reopened months or years later.

A little known principle is that a corporation does not receive a discharge. A corporate bankruptcy allows a trustee to liquidate the remaining assets, if any, and to allow the owners to walk away from the company without having to deal with continued collection efforts by creditors. The idea is for trustee to do a fair and orderly distribution. In many cases there are no assets to liquidate or distribute. In those instances, the court will confirm it is a no-asset case and then send notices out to the creditors.

A successful Chapter 7 bankruptcy will result in the elimination of most common consumer debts such as medical bills, payday loans, and credit cards. Some types of debts are not discharged including student loans, recent tax debts, debts incurred by fraud, family support claims, and any other obligations owed as part of a divorce. For fraud debts, the creditor has to timely file a complaint for dischargeability and get a court order otherwise those debts are also discharged.

For more questions about bankruptcy 7, visit our FAQ page.

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