Dischargeable debt is debt that can be eliminated after a person files for bankruptcy. The debtor will no longer be personally liable for the debts and therefore has no legal obligation to pay discharged debt. In most cases, creditors are also unable to take collection action against the debtor if the debt has been discharged.
Some common dischargeable debts include credit card debt and medical bills. Other debts such as domestic support and tax obligations are generally non-dischargeable due to public policy reasons. 11 U.S.C.A. § 523 lists out exemptions to dischargeable debts and non-dischargeable debts. Dischargeable debts and their requirements vary depending on what type of bankruptcy the debtor files under federal bankruptcy law.
Dischargeable Debt under Chapter 7
In Chapter 7 cases, a discharge is only available to individuals but not to corporations or partnerships. As such, individuals are able to discharge their debt in more than 99% of chapter 7 cases. However, there are grounds for denial. A creditor or trustee can file an objection to a debtor’s discharge in bankruptcy court, which would start an adversary proceeding. A court may also deny a debtor’s discharge due to grounds laid out in 11 U.S.C.A. § 727(a), such as presenting a false claim or failure to explain satisfactorily any loss of assets to meet debtor’s liabilities. Even when a discharge has been granted, secured liens are often non-dischargeable. For example, a debtor’s house may be repossessed if he or she accrues unpaid mortgage payments. If a debtor would like to keep their property, he or she can sign a reaffirmation agreeing to pay back the debt even if the debt has been discharged.
Dischargeable Debt under Chapter 11
In Chapter 11 cases, discharge is generally available to a debtor when he or she confirms a reorganization and repayment plan. However, if the plan is a liquidation plan rather than a reorganization plan, the debt is not dischargeable unless the debtor is a single individual (not a corporation or partnership). If the debtor is an individual, the debt is not dischargeable until all plan payments have been made, in most cases.
Dischargeable Debt under Chapter 12
In Chapter 12 cases, debt can be discharged after a debtor completes payment on his or her Chapter 12 plan and certifies that all domestic support obligations due before the certification have been paid. Creditors who were paid either in part or in full cannot initiate any further legal actions against the debtor to collect. In addition, under 11 U.S.C.A. § 1228(b), a court may grant a discharge to a debtor even when he or she is unable to complete all plan payments in some circumstances.
Dischargeable Debt under Chapter 13
In Chapter 13 cases, debt can be discharged after a debtor completes payment on his or her chapter 13 plan and (1) certifies that all domestic support obligations due before certification have been paid, (2) has not received a discharge in a prior case within designated time periods, (3) has completed an approved course in financial management if available. Chapter 13 discharge encompass more than some other types of bankruptcies; 11 U.S.C.A. § 1328(a) lists the types of dischargeable debts allowed. Similar to Chapter 12 cases, under 11 U.S.C.A. § 1328(b), courts may grant a discharge to a debtor even when he or she has not completed all plan payments under some circumstances.
[Last updated in August of 2020 by the Wex Definitions Team]