Before taking a look at the timing of discharge, let us first take a look at the basic concepts behind discharge.
Discharge of debts through bankruptcy is essentially the elimination of debts. If a bankruptcy court discharges debts, it is granting the debtor permission to never repay these debts and telling the creditors they may not seek reimbursement for these debts.
Basically, the debtor no longer owes the discharged, or eliminated debts. Creditors who seek reimbursement after discharge are violating the court’s orders.
Types of Bankruptcy Filings and Timing of Discharge
The main four types of bankruptcy proceedings fall under four chapters of the Bankruptcy Code: chapters 7, 11, 12, and 13. Each chapter provides for different remedies under the Bankruptcy Code for existing debts owed. The timing of the discharge varies, depending on the chapter under which the case is filed.
Under chapter 7 a debtor’s non-exempt assets are liquidated to pay off creditors and the remaining dischargeable debt is eliminated.
In a chapter 7 (liquidation) case the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the 341 meeting).
Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court.
Chapter 11, Chapter 12, and Chapter 13
Chapter 11 allows a debtor to file a reorganization plan. Debt acquired prior to the confirmation date is generally discharged and the debtor must follow the provisions of the reorganization plan in the future.
Under chapter 12, family farmers or fisherman come up with a repayment plan in installments. Dischargeable debt is discharged under chapter 12 after completing all payments under the plan.
Under chapter 13, a person with regular income develops a repayment plan to repay all or part of his or her debt. The chapter 13 discharge comes after the debtor completes all payments under the plan.
In individual chapter 11 cases, and in cases under chapter 12 (adjustment of debts of a family farmer or fisherman) and 13 (adjustment of debts of an individual with regular income), the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan.
Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing. The court may deny an individual debtor’s discharge in a chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.”
The Bankruptcy Code provides limited exceptions to the “financial management” requirement if the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.