Chapter 7 Bankruptcy Information
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Securing Your Discharge Order in Tucson and Southern Arizona
Eliminating Debt through Bankruptcy Discharge
A bankruptcy “discharge of debt” is legal terminology for “eliminating or forgiving debt.”
According to the U.S. Bankruptcy Court, “A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged.”
When you file Chapter 7 bankruptcy, you can eliminate your unsecured debt.
You may be wondering what the difference is between secured and unsecured debt. Secured debt is a debt that has some property or asset tied to it, which acts as collateral. A credit union may repossess your car and sell it for fair market value as payment for the debt you owe.
If you neglect to pay the loan on your house, the lender may foreclose and seize the house. Your home acts as collateral for the mortgage.
What Debts are Dischargeable in a Bankruptcy?
Here is a brief listing of dischargeable debts in a Chapter 7 bankruptcy filing:
- Medical bills
- Debts from Credit Cards
- Old unpaid utility bills
- Pay day loans
- Certain types of tax debts
Your debts will be discharged at the end of your Chapter 7 bankruptcy. This usually occurs 4 to 6 months after you file your Bankruptcy Petition.
A bankruptcy debt discharge lawyer at the Law Offices of Matthew T. Foley, PLC, can meet with you during a free consultation, review your financial history, and tell you which of your debts may qualify to be discharged in Chapter 7 bankruptcy.
The scope of the chapter 7 discharge should be discussed with an attorney, as some debts are “nondischargeable” such as student loans, domestic support obligations, reaffirmed loans, and recent tax debts. In which case, a debtor may want to file a chapter 13 bankruptcy. In addition, creditors can file nondischargeability actions (called “adversarial complaints”) to object to debts for malicious injury, damage caused from drinking and driving, and criminal restitution (11 U.S.C. § 523(a)). However, if a creditor fails to assert their action in a timely fashion, some § 523 claims will be discharged (11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c)).
A Debtor’s Duty & Bankruptcy Fraud
A chapter 7 discharge can be revoked by the request of a trustee, a creditor, or the U.S. trustee if the debtor commits fraud in obtaining their discharge. Fraud includes misrepresentations and material omissions, such as if the debtor knowingly and fraudulently fails to report the acquisition of property that belongs to the bankruptcy estate. A discharge can also be revoked if the debtor fails to 1) surrender property to the trustee, 2) cooperate with the trustee, and 3) makes a material misstatement or fails to provide documents or other information in connection with an audit of the debtor’s case. 11 U.S.C. § 727(d).
Fortunately, a revocation of discharge is exceptionally rare among competent attorneys and cooperative debtors. A chapter 7 bankruptcy provides Tucson families with the tremendous benefit of a fresh start, free of most debts and with no tax consequences. It would be disastrous to jeopardize this fresh start.
The purpose of filing a bankruptcy is to secure a discharge. The debtor should receive their discharge approximately 90 days after the hearing date (Fed. R. Bankr. P. 4004(c)), which releases a debtor from personal liability for most debts and prohibits a creditor from taking any actions in furtherance of collecting on the debt (11 U.S.C. § 727). Dischargeable debts include credit cards, repossessions, deficiency actions, lawsuits, certain taxes, broken leases, breaches of contact, medical debt, and other unsecured debt. Also, a Chapter 7 discharge extinguishes a debtor’s personal liability (called “in personam” liability). The discharge does not void liens against secured property (called “in rem” liability). For example, a debtor is no longer personally responsible for a home equity line of credit, however, the lien is still enforceable against the home.
The bankruptcy code accommodates Arizona’s community property structure with a “split” discharge that protects both the filing debtor and the marital community. (See § 524(a)(3)). The rationale is simple, a non-filing spouse subjects their share of the community assets to the bankruptcy estate, including non-exempt assets and income, therefore the entire community consequently receives the benefit of a bankruptcy discharge. Only the non-filing debtor remains obligated to separate debts in the event of the dissolution of the marriage or the death of the filing spouse. In actuality however, one could suspect that most debts are written off as “discharged” during the initial bankruptcy and in practice, most debts and debt collectors do not have the sophistication or tracking capacity to follow a non-filing debtor long enough for the potential of a divorce down the road. However, when a divorce is imminent, a lawyer must carefully structure the divorce in conjunction with a bankruptcy, if debt relief is needed.
The non-debtor’s contribution to the community is not subject to collection because that portion is only subject to collection if the debt is from prior to the marriage under ARS 25-215 (B). In general, see ARS 25-215. In the event that the divorce happens, the debts are no longer community debts but joint debts and the 524 Community Discharge is inapplicable.