If a debtor files bankruptcy, the primary goal in most cases is to obtain a discharge. That applies in Chapter 7 and Chapter 13 cases. In Chapter 13 cases, the discharge takes longer because the debtor must complete a plan, which pays back a portion of the debt to creditors. In Chapter 7 cases, the discharge is usually entered about four months after the case is filed.
After a discharge is entered, the creditors affected by the discharge are no longer able to collect on the debt, or even attempt to collect. The only way a creditor would be paid after a discharge is when the debtor voluntarily pays the creditor (such as a friend or family member). Even if the debtor gets a new, high-paying job, or comes into a large amount of money in some other way, the creditors cannot come after the debtor in any way once the discharge is entered.
There are a few exceptions that extend past the discharge, but only for a short time. Inheritances and life insurance proceeds are examples of types of income that can be collected by the bankruptcy trustee if they are received any time within 180 days (about six months) after the bankruptcy filing date. Since the discharge is usually entered after four months, there is an additional two months where certain types of income would not necessarily be protected. However, in most cases, once the 180-day period has expired, the Trustee would not have a right to pursue any income received by the debtor.
The only creditors that present a problem to debtors who have received their discharge are secured creditors, such as lenders on mortgages and car loans. Since bankruptcy generally does not remove secured interests (except in some Chapter 13 situations), secured lenders still have the right to pursue the property securing their loan if the debtor defaults. Thus, to retain a house or a car, the debtor will need to keep those payments current.
When considering filing bankruptcy, it is wise to consult with an attorney prior to filing to make sure you are fully informed about the benefits of the bankruptcy discharge.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.