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How a Chapter 7 discharge works

On Behalf of | Apr 23, 2021 | Chapter 7 Bankruptcy

Chapter 7 bankruptcy gives California consumers a way to make a fresh start if they have mounting debts they can no longer pay due to unforeseen circumstances. The trustee divides the proceeds from the selling of non-exempt assets, such as jewelry, among the secured creditors. The debtor should receive a discharge after the case closes.

How discharge works in bankruptcy

The discharge in a Chapter 7 bankruptcy commonly occurs four to six months after filing. The debtor must fulfill the requirements of the case, which includes attending a meeting of creditors. The discharge removes most remaining unsecured debts, even if they have been partially paid. The court clerk mails all creditors a copy of the discharge and they can no long pursue the debt or sue the debtor.

Creditors who proceed to collect could get charged with contempt of court. A debtor may file a motion to reopen cases if a former creditor tries to collect discharged debts. A trustee or creditor may the court to revoke a discharge they feel the debtor got through fraud.

Debts that do not get discharged

Chapter 7 bankruptcy only removes certain unsecured debts, or debts that have no collateral. These debts include credit card debt, medical debt, past due utility bills, and some back taxes. Chapter 7 does not remove past due child support or alimony, debts from willful injury, court fines, tax liens, or HOA fees.

It won’t remove debts not listed on the petition or that did not get a discharge in a previous bankruptcy. Creditors may petition a debt not to get discharged if they feel it is fraudulent, such as luxury items purchased within 90 days of filing bankruptcy.

Chapter 7 is relatively straightforward, but bankruptcy laws in general can be confusing to some people. Accordingly, they might want to have legal assistance throughout the entire process.