You know the old saying, “You can’t see the forest for the trees?” Well, this saying can apply in the bankruptcy world also. Sometimes debtor attorneys get so caught up in examining the trees (like fraudulent transfers or presumption of abuse cases) that they lose sight of the “big picture.” For most debtors, the main benefit of bankruptcy is the promise of a “fresh start” – and that means a bankruptcy discharge.
But what is a bankruptcy discharge?
The usual answer is something like, “A discharge in bankruptcy is a permanent court injunction prohibiting creditors from attempting to collect on any debt that was discharged.” But that answer sounds a little circular and confusing, so let’s take a brief look at some of the main benefits of the bankruptcy discharge using plain English:
No Longer Legally Enforceable
A debt that is discharged during the bankruptcy case is no longer an obligation that can be legally enforced against the debtor. The debt is still there, it’s not erased or “wiped out,” but the bankruptcy judge has ordered that the creditor is forever barred from taking any action to collect it from you, personally. No longer owing the money and the creditor not being able to collect is hair splitting in most cases – it generally has the same effect.
Creditor Harassment Stops
The discharge injunction means that ALL collection action on a discharged debt must stop. Forever. It means that the creditor is not permitted to contact you by mail, phone, or otherwise, to file or continue a lawsuit, to attach your wages or other property, or to take any other action to collect a discharged debt from you. This applies to any individual or entity trying to collect the debt, such as collection agencies and collection attorneys. A creditor or third party collector who violates this discharge injunction may be found in contempt of the bankruptcy court’s injunction, and ordered to pay damages and attorney fees.
Negative Credit Reporting Stops
An often overlooked consequence of the discharge injunction is that creditors are prohibited from reporting negative information on your credit report. When the bankruptcy case is filed, the automatic stay temporarily stops negative reporting on your credit report (which is seen as an attempt to collect a debt through indirect pressure), later the discharge injunction makes this stay permanent. A discharged debt should be reported as “discharged in bankruptcy” with a “zero balance.” There should be no further derogatory remarks of any kind after the bankruptcy case is filed, which also includes any collection agency transfer. In effect, filing bankruptcy “freezes” the discharged debts on your credit report which will help you rebuild after bankruptcy.
As the United States Supreme Court said in case of Local Loan Co. V. Hunt (292 U.S. 234, 1934), the bankruptcy discharge provides “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.” The bankruptcy discharge is a powerful tool that can help a financially burdened individual gain a fresh start. Speak with an experienced bankruptcy attorney today to discover how a bankruptcy discharge can help you.