The Chapter 7 Discharge

The primary goal in any bankruptcy, including Chapter 7, is to obtain a discharge. The discharge is the order by the court that eliminates the liabilities of that particular debtor. In Chapter 7 cases, this is governed by 11 USC 727. The way that this statutory provision is structured is such to favor a discharge unless certain things exist in the case that can hinder them. The language of the statute states that the "court shall grant the debtor a discharge, unless" and follows that with several instances that could prevent a discharge from occurring in Chapter 7.

Section 727 lists specific requirements for a Chapter 7 bankruptcy discharge to be granted. The way the statute is structured is to suggest that if certain things exist, a discharge will not be granted. Examples of these are property transfers within a year of filing designed to hinder, delay, or defraud a creditor or an officer of the court; if the debtor failed to produce required financial information in some way; if the debtor had received a Chapter 7 discharge within the 8 years prior to the filing of the instant case; or if the debtor had failed to complete the debtor's education requirement prior to discharge. Clearly, the language of the statute suggests that outside any of these circumstances, a discharge of the debtors is favored. The debtor must be an individual to receive a discharge, but in most cases will receive one.

Tied into Section 727, given that it is specifically listed in section 727(b), is 11 USC 523. 727(b) provides that except "as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter." Section 523, therefore, provides certain debts that even if included in a Chapter 7 bankruptcy will not be discharged.

Looking at 523, it is clear that a discharge under 727 does not discharge an individual debtor from tax debt; debt based on credit obtained by false pretenses and incurred within a certain amount of time before filing; or debts for domestic support obligations. Under this section, it is clear that government fines, penalties, or forfeitures are not dischargeable in Chapter 7 as well. Section 523 also illustrates that absent an undue hardship (which is nearly impossible to prove), student loans are not dischargeable, as well as debts stemming from personal injury cases that occurred because of drugs, alcohol, or other intoxicants. Finally, the section provides that debts that are incurred by the debtor in the course of divorce or separation or part of a divorce decree, are not dischargeable (e.g., debts that are stipulated to be paid pursuant to a divorce decree), and membership association fees for a condo or home are non-dischargeable as well.

These are important considerations to discuss with your Chicago bankruptcy lawyer as you prepare to file bankruptcy. Knowing which of your debts are dischargeable, as well as certain activities that could hinder a Chapter 7 discharge, are vital to the success of your case as well as complicated in nature. Thus, while preparing for bankruptcy or while you are in an active bankruptcy, it is best to consult an experienced bankruptcy attorney to represent you.