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Your Discharge
Some Comments Concerning Your Discharge in Bankruptcy
 by
The Honorable John C. Akard (ret.),
 United States Bankruptcy Judge, 
For the Northern District of Texas

A. History

The history of English debtor's prisons was vivid in the minds of the founding fathers of our country. They realized that many people came to the shores of this new land seeking a fresh start and a new beginning. Our forefathers felt that honest people who through unfortunate circumstances found themselves in financial difficulty, should be given an opportunity for a fresh start--an opportunity for a new beginning in their financial lives. For these reasons the United States Constitution reserved the right to make laws concerning bankruptcy to the Federal Government.

B. Effect of the Discharge

Basically, your Discharge applies to all debts which you owed on the date your bankruptcy petition was filed. There are some exceptions which we will discuss in a minute.

When you receive the Discharge, the debts which you owed at the date the petition was filed are wiped out and you are no longer legally obligated to pay them. For this reason, creditors cannot contact you, write demand letters to you or your employer, or file suit against you with respect to a debt which has been discharged in a bankruptcy. If you receive any contact from a creditor about an old bill after you receive your Discharge, contact your attorney. Your attorney is obligated to represent you throughout the bankruptcy proceedings and will assist you in this matter. If it is determined that the creditor is trying to collect a bill which was discharged in the bankruptcy, your attorney will have that creditor brought before the court and punished accordingly.

In addition, governmental agencies and private employers are prohibited from discriminating against you in employment or for continued employment because you filed a bankruptcy proceeding.

Even though you receive a Discharge, that does not mean that your bankruptcy case is concluded. The Trustee may still have additional duties to perform. The Trustee may call upon you for assistance, information or documents. Please respond to the Trustee's requests promptly. If you have any questions concerning the Trustee's requests, contact your attorney. If you do not cooperate fully with the Trustee, you will find that the Trustee will file a complaint with the Court to have your Discharge revoked. If that happens, you will be back where you were before the bankruptcy was filed -- owing all of the bills.

C. Not Everyone Gets a Discharge

A Discharge in bankruptcy is for honest but insolvent people. There are some people who go through the same procedures which you have gone through, but they do not get a Discharge. In other words, they still owe all of their bills.

Congress specified certain acts which would cause a person not to be granted a Discharge. Creditors have a limited time in which to file a complaint with the Court alleging that a person fits one of these categories. The time for filing those complaints in your case has passed. If such a complaint is filed, the Discharge is not issued until after the hearing on the Complaint and then only if the Court determines that the Discharge is proper.

D. Debts Which You Will Owe After the Discharge

After the Discharge is granted, you may still owe debts in one or more of the following categories:

  1. Postpetition Debts.  The Discharge applies only to bills you owed on the date the petition in Bankruptcy was filed. You are obligated to pay any debts you incurred after the date of the filing of your bankruptcy petition.
  2. Nondischargeable Debts.  There are certain categories of debts which Congress felt you should pay even though you get a Discharge in bankruptcy.

    1. The first group are declared automatically nondischargeable by Congress and the creditors do not have to take any action with the Court. Basically these are debts for taxes, alimony, and child support, student loans, debts you did not list in your Bankruptcy Schedules, and debts arising from driving while intoxicated. If you have any questions concerning these, consult your attorney.

    2. Congress established other categories of nondischargeable debts. With respect to these categories, the creditors must file a complaint with the Court within a limited time. When you receive your Discharge, the time for filing those complaints will have passed. If such a complaint has been filed in your case, your attorney is aware of it and has told you about it. The Court will hold a hearing on that complaint at which the creditor will tell its side of the story, and you will have a chance to present your side of the story. The Court will then determine if the debt fits within one of the categories Congress has specified. If it does, you will be obligated to pay that debt and it will be excepted from the Discharge.

Debts You Really Want to Pay. There may be some debts that you feel a strong moral obligation to pay, such as obligations to a friend or relative or to a creditor for whom you have a special feeling, such as a doctor. You are encouraged to pay those debts. In fact, we hope that the day will come when you are on your feet financially and can pay all of the bills which were discharged in your bankruptcy.

Reaffirmations. You claimed certain property as exempt. There may be a mortgage on some of that property. The Discharge wipes out your personal liability on the debt to that creditor, but it does not wipe out the mortgage. Let's use a car as an example. You own a car which you claimed as exempt, but there is a mortgage on that car in favor of a bank. You have a choice. You can either:

  1. Turn the car over to the Bank. In this way you are relieved of the debt and the mortgage and have no further obligation to the Bank with respect to the car. You should carefully consider this alternative. In many instances it is better to borrow a car from a friend or relative until you can afford to purchase a car, ride the bus, or buy an old clunker to get to and from work until you can afford something better. You may find that the payments on the car are beyond your budget, or that the amount owed on the car exceeds what it is really worth; or

  2. Make an agreement with the bank to continue the regular monthly payments (or a reduced monthly payment which you and the bank agree upon) and keep the car. When the mortgage is paid off, the car is yours.

    If you take the second option, the bank may ask you to sign a reaffirmation agreement. This agreement will state that you will pay for the car on the agreed upon terms. If you sign it, it is as if you had never taken bankruptcy with respect to that particular debt. If you fail to make the payments as agreed, the bank can follow its normal collection practices, including writing demand letters, repossessing the car and suing you for any loss (deficiency) which the bank might suffer if the car is resold for less than the balance owed.

As you can imagine, Congress wants you to be very careful about signing reaffirmation agreements. Congress does not want you to get "out of the frying pan and into the fire" in your financial affairs. For these reasons, if you sign a reaffirmation agreement your attorney must furnish a certificate to the Court stating that in his opinion, the reaffirmation agreement represents a fully informed and voluntary agreement by you and that it will not impose an undue hardship on you;

You still have 60 days after the reaffirmation agreement is filed with the Court (or until the date of your Discharge whichever is later) to rescind the reaffirmation agreement. If you decide that you cannot really afford the payments under the reaffirmation agreement, you should contact your attorney immediately, so that you can rescind the reaffirmation agreement. If you do not rescind the reaffirmation agreement within the specified time, then it becomes as binding on you as if you had never taken bankruptcy with respect to that particular debt.

E. Property

The bankruptcy applies to all property that you owned at the date the petition was filed, with one major exception. This exception is any property you become entitled to inherit within six months after the filing of the bankruptcy petition. Thus, if someone dies and you are a beneficiary of that person's insurance policy, you are a beneficiary of that person's will, or if the person did not leave a will and you are entitled to a portion of that person's estate under the laws, then you must immediately report that fact to the Trustee and turn over to the Trustee all money or property which you receive. Note that this six-month period is measured by the date the person dies, no the date you might otherwise get the money at the conclusion of the probate proceedings. The funds which are turned over to the Trustee will be distributed to your creditors.

If you do not report an inheritance to the Trustee, you will find the Trustee knocking on your door, you will have to pay the money to him and your Discharge will be revoked. If your Discharge is revoked, it is as if you had never taken bankruptcy; you will owe all of the bills.

F. Preserve Your Discharge

You will be issued a certificate by the Court entitled "Discharge" which certifies that you received a Discharge in your bankruptcy proceedings. This is a very important paper and should be kept in a safe place so that you can show it to creditors or to anyone who questions whether you got a Discharge in the bankruptcy proceedings.

G. A Fresh Start

The object of a Discharge is to give you a fresh start -- a new beginning in your financial life. In order for you to have that fresh start, you need to take a hard look at how you handle your money and what you do with your money.

  1. First, you must set your financial goals. You need to distinguish goals (which are realistically attainable with proper planning and budgeting) from dreams (which are beyond your financial capabilities). In setting your goals, you must be realistic with yourself and determine priorities. You may find that you have more goals than you can afford.

  2. Second, you must limit your use of credit. You have learned the cost of credit. You have learned that if you buy something on time, it will cost you two or three times what it would have cost if you had paid cash. You have seen how much more economical it is to buy things a little at a time as you can afford them. Wise use of credit for major purchases (such as houses and cars) is certainly the American way of life and is probably desirable in the long run. The use of credit for other items can soon lead to financial disaster. This is particularly true if you use credit to purchase food, clothing, vacations or other items which are consumed or worn out before the bill is paid.

    Suggestion: Every month put into a savings account the amount of the monthly payment which you would be making to purchase the item. This practice will work for the purchase of a car, furniture, etc, for sending a child to college, or for taking a vacation. For example, if you plan to take a vacation next year which will cost $1,200, you should start now to put $100 per month into a savings account. When you take the vacation, you can enjoy it knowing that it has been fully paid for and that you will not return home to "vacation bills".

  3. Third, you must learn to live on a budget. At first a budget is distasteful, but as you learn to use it you will realize that it is the key to your financial well-being. Set aside money each month for items which you plan to purchase.

There are a number of places where you can get budgeting assistance. Among them are:

  1. The County Agricultural Extension Agent has many materials which will be of real benefit to you in budgeting, money management, and wise shopping. In addition, the County Agent can show you how to get, at a very modest cost, an excellent budgeting guide from the United States Department of Agriculture.
  2. Most churches have budget counseling available.
  3. The United Way in each city has an agency which can give you education in money management.
  4. SCORE, Service Corps of Retired Executives, is a group of retired executives sponsored by the United States Small Business Administration. SCORE members donate their time to assist small businesses. There is no charge for their service. If you, or anyone you know, operate a small business or are thinking about operating a small business, you would be wise to visit with a SCORE member. For the name of a SCORE member nearest you, please contact: SCORE at the U.S. Small Business Administration,
    Telephone: (806) 743-7462.

H. A Valuable Right

Your Discharge is a valuable right. You have purchased it at a high cost. There is a high cost to you emotionally. Having been involved in bankruptcy matters for more than 30 years, I know what your bankruptcy proceeding has cost you emotionally. Also there has been a monetary cost to you for court costs and attorney's fees. In addition, there is a cost to your creditors. They had accounts which they thought would be paid and which will not be paid because of your bankruptcy. Congress provided this valuable right to you. This Discharge of your debts in a bankruptcy proceeding protects that right.

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