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What is a bankruptcy discharge order and when does it occur?

A discharge in a consumer bankruptcy in Arkansas and all other federal bankruptcy districts comes after the trustee has conducted a meeting, thoroughly reviewed all matters, and concluded that all laws and procedures have been followed. The Court then orders a full discharge of the debtor’s unsecured debts. This goes relatively quickly in a Chapter 7 bankruptcy, which is the most common form of consumer filing.

A single filing is by a single debtor whereas a joint filing is by a married couple. A Chapter 7 eliminates unsecured consumer debts, such as credit cards and medical bills, quickly and permanently. Chapter 7 is called “liquidation” because if there are any non-exempt assets, they will usually be sold and the funds distributed to creditors. Usually, however, due to legal exemptions, Chapter 7 debtors do not often lose their basic assets.

At times, the residential real estate may be lost or relinquished in a Chapter 7. This occurs when the mortgage account is deeply defaulted and the debtors do not wish to try to keep the house through a Chapter 13 payment plan. However, usually the house can be retained in a Chapter 7 if there is an up-to-date mortgage account and the debtors sign a reaffirmation agreement with the lender.

In a Chapter 7, there will be a “creditors meeting” where the papers are once again reviewed and the debtor is questioned by the Chapter 7 Trustee. If everything is deemed to be in order, the Trustee will shortly thereafter file a recommendation to the Court for the granting of a discharge of the debtor’s debts. The whole process from filing until the discharge may take about six months.

In Arkansas and all federal bankruptcy districts, the discharge in a Chapter 13 is not entered until the debtor has successfully completed a court-approved payment plan. The plan usually ranges from 3 to 5 years, and consists of a single monthly payment to the Trustee each month during the Plan. A Chapter 13 may be used for paying off a variety of debts, but is generally most often used by consumer debtors to save the residential premises by getting the defaulted mortgage back up-to-date through the monthly payments.

Source: Fox Business, "When is a Bankruptcy Officially Discharged?", Erica Sandberg, Aug. 4, 2014

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