A “Discharge” in a Bankruptcy case is a permanent release from personal liability for certain debts. A discharge comes in the form of a Court order, and is permanently enjoins a creditor from trying to collect a discharged debt. In most personal Bankruptcy cases, the discharge of debt is the most important goal in the case so it is important that the case be handled correctly so the discharge will not be delayed. Common debts discharged in a Bankruptcy case include credit card debt, medical bills, personal loans and home loans that are not reaffirmed. A few kinds of debts may not be discharged, and in a few cases the debtor may not receive a discharge at all. In a way, the discharge of debts begins with the filing of the Petition and the beginning of the automatic stay, which prohibits creditors from continuing collection efforts. The discharge replaces the stay with a permanent injunction.
Importantly, although a discharge relieves the debtor of personal liability for a debt that is not reaffirmed, a secured creditor can still look to its collateral for satisfaction of the debt. For example, if a debtor receives a Chapter 7 discharge and does not reaffirm their home loan, the lender can still foreclose on the property to try to recoup some of the debt from the sale of the collateral. They just cannot attempt to collect any part of the debt directly from the debtor and are limited to what they can get at a foreclosure sale. In reality, most lenders will continue to collect voluntary monthly payments and allow the debtor to keep the property since they would rather have money than property.
Unless there is litigation concerning the debtor’s entitlement to a discharge, or the debtor has failed to comply with the counseling requirements, a discharge is generally entered automatically and the discharge order mailed to the debtor. In a Chapter 7 case, that is typically about four months after the case is filed. In a Chapter 13 case, it is entered at the completion of the Chapter 13 Plan. Since the date of discharge is an important date, that document should be kept with other important documents forever.