What Happens to Discharged Debt in California Bankruptcy?
After hearing of a bankruptcy case, it is common practice for law courts in California to spell out terms to guide the discharge of debts by the party filing the case. This crucial step is usually meant to relieve you from the obligation of paying off debts. Issued through a bankruptcy discharge order, it prohibits the creditor from ever taking collection action on the debt against you again.
A debt discharge order is one of the least understood aspects of the bankruptcy laws in California. What with money-hungry bankruptcy attorneys luring debtors with creative terms such as “making your debt disappear”, “erasing your debts” and the likes?
It is not a surprise that many unsuspecting debtors fall for such antics, only to find themselves in trouble with friends, family and relatives or even the IRS later on due to unresolved debt issues. While the terms contained in a debt discharge order may seem to redeem one of the debts ultimately, this, in reality, is rarely the case.
But, what then does a debt discharge order in bankruptcy mean?
The issuing of this order, however, doesn’t mean that the debt has been erased or disappeared. The debt still exists, and one is expected to take steps to clear it following the discharge. The reprieve of the order, however, is that the creditor would have no further legal grounds to take action against you for that debt.
Which thus begs the question, how would the creditor acquire the debt from you? Would they sorely have to rely on voluntary payback since they no longer have a legal ground for collection?
The truth is, a creditor would still have a few means of recovering the debt eventually. One of the most common approaches would be to seek recovery from co-debtors. While the discharge order would exonerate you as an individual from the debt, co-debtors according to California Bankruptcy laws are 100% liable for the debt. Thus a creditor would seek legal action against them in an attempt to recover your debt.
Collecting property used as collateral is also another option at the creditor’s disposal. Additionally, the IRS may decide to tax the charged-off debt against the debtor in the creditor’s place, though not as taxable income.
While the debt discharge order can provide a creditor with numerous reprieves in dealing with the creditors, it is advisable first to understand the basics of such a request to avoid unforeseen problems in the future.