Bankruptcy Discharge

The term bankruptcy discharge is not as common as ’asset protection’, the more colloquial term used to describe roughly the same thing.

Bankruptcy discharge occurs after an applicant has already filed for bankruptcy (most often this is Chapter 7 bankruptcy, most widely known for it’s liquidation aspect). Under federal law, this person is then released from any personal liability to its creditors on most types of debts.

This basically means that the debtor does not have to immediately pay their debts. Therefore the creditors must notify collection agencies that they can no longer come calling. It also means that the creditor must cease and desist and kind of permanent action against the debtor.

This includes:

  • Telephone calls
  • Personal contact
  • Letters
  • Emails

Although the debtor is relieved from any personal liability they are still accountable for to the court appointed trustee who will then mediate an agreement between the debtor and the creditors in order to maximize the cash derived from the liquidation of the assets.

In most cases of chapter 7 bankruptcy the discharge occurs after sixty days of the original filing. This gives creditors enough time to make case against the filing, and it gives them time to propose alternatives that they would hope could generate more cash.

Sometimes a discharge will not be granted and the business will be required to stay open in an attempt to work off the debt. In many cases this is endorsed by all parties, as it gives the debtor the confidence that he or she will be able to get the best price for their property, and it means that the creditors have a better change of getting most of their investment back.

In some cases though, the applicant will not be given a bankruptcy discharge because they simple filed under the wrong chapter. While this usually only happens with inexperienced business people who opt not to hire a lawyer, it is rare.

The bankruptcy discharge is in place to help the creditor and give he or she a little breathing room after the humiliation of having their business fail.