A bankruptcy discharge is an order from the bankruptcy court that releases the debtor from liability for certain debts. After the discharge, the debtor is no longer legally required to pay any debts that are discharged.
The order also prohibits the creditors from attempting to collect any debts that have been discharged. This means the creditors have to permanently stop all legal action, telephone calls, letters, and other forms of contact with the debtor.
In most of Chapter 7 cases, all of the debtor’s assets are exempt. This is referred to as a “No-Asset” Chapter 7. At the end of these cases, the trustee files a report with the court stating that there were no assets to administer.
At the end of an “Asset” Chapter 7 case, the debtor will have non-exempt assets that the trustee will have to gather and sell. Once the trustee has a pool of funds, the court will welcome all creditors to file claims for what they contend the debtor owes. The trustee then mails checks to those creditors whose claims have been allowed by the court. Once all the non-exempt assets have been liquidated and all the claims have been filed, resolved and funds have been distributed, the trustee will file a report with the court. The court will then close the case.
A debtor who files a Chapter 7 case with non-exempt assets is expected to cooperate with the trustee’s efforts to find, liquidate and distribute non-exempt assets. If the trustee later discovers that the discharge was obtained by fraud, he/she can ask the court to revoke the discharge even after the closure of the case.
A closed Chapter 7 case can also be reopened to add forgotten debts. Debts that were not listed during the filing of the case are not discharged. The case can also be reopened to liquidate an asset that was not listed in your bankruptcy paperwork.
In Chapter 13 cases, assets are not liquidated. Instead, the debtor is required to make regular (usually monthly) payments to the trustee for three to five years based on a court-approved payment plan. The trustee then remits these payments to all the creditors who have filed proper claims with the court. The court will enter a discharge order and later close the case once the debtor has made all the payments according to the agreed payment plan.