What is a Bankruptcy Discharge?

The begining of your fresh start

Discharge in bankruptcy can be looked upon as a new beginning in your financial life because when you obtain your discharge, you are free from the debt under the bankruptcy plan. In other words, discharge in bankruptcy is a permanent court order releasing you the debtor, from personal liability for certain specified types of debts. The order prohibits creditors from initiating collection action on any discharged debts, including legal action or communication with the debtor, such as telephone calls, letters, or personal contacts.

Debts excluded from discharge are valid liens against specific property, wherein a secured creditor may enforce a lien to recover the property secured by the lien. Other debts unenforceable under discharge are student loans or the IRS.

Refinancing after bankruptcy with an experienced bankruptcy lender can aid immensely in paying off residual debts that were excluded from discharge. This action accelerates rebuilding credit after bankruptcy and restores your credit score to a more appropriate level.

When does the “Discharge” occur?

How and when you get a discharge depends on the type of bankruptcy you filed: Chapter 7, Chapter 11, or Chapter 13.

Chapters 7 and 11,

Under a Chapter 7 or 11 bankruptcy, a discharge occurs after the court process has reconciled a settlement of all assets and debts. Typically, a Chapter 7 or 11 bankruptcy is discharged about three to four months after the file date with the bankruptcy court.

Chapter 13

Under a Chapter 13 bankruptcy, you agreed to pay off certain debt over a time period of 3-5 years. Once you have completed the payment plan, the court will issue you a formal discharge document that confirms you have fulfilled the plan and are free from the debt.

If you own a home and have enough equity in your property, you can do a Chapter 13 refinance and pay off the plan early with no penalties by the court. This action will enable you to obtain a full discharge from the debt and begin rebuilding your damaged credit right away, instead of waiting to complete the extended payment plan. In addition, your total payments will be less after a Chapter 13 refinance.

Summary

The good news is that once the court issues your discharge in bankruptcy, you have a great opportunity to repair and reestablish your credit. You are now viewed by certain lenders as a good risk and your options for getting a mortgage after bankruptcy are greatly improved. Always protect yourself by dealing only with a qualified bankruptcy lender.