Getting a discharge of your debts is a significant step in your bankruptcy, but it is not the end of your case. Your case ends when the court enters an order closing it. In this article, you'll learn:
Find out more about the differences between Chapters 7 and 13.
Most people file for bankruptcy for the debt discharge. It's the last court action that directly affects many filers, so, understandably, they think the case is over once it's received. It's also confusing that, in many instances, the court will close the case soon after the entry of discharge. But the discharge order and case closure are different.
The bankruptcy discharge releases the debtor from liability for certain debts, so the debtor is no longer legally required to pay the balance. The discharge also prohibits creditors from collecting discharged debts in any manner, including through lawsuits, demand letters, and telephone calls.
In some cases, the bankruptcy will continue for some time after the discharge order is issued. In fact, for creditors, the trustee, and the court, the case could be just getting underway.
A Chapter 7 case will remain open after the discharge if the Chapter 7 trustee appointed to the matter needs additional time to sell assets or if the case involves litigation.
In many Chapter 7 cases, the debtor keeps all property because the debtor's assets are exempt. This type of bankruptcy is known as a no-asset Chapter 7. In most no-asset cases, nothing remains to be done after discharge. After the trustee files a report stating that there are no assets to administer, if there is no outstanding litigation, the court enters an order closing the case.
If the case involves assets the trustee needs to sell, the case could go on for months or years after the discharge. The amount of time will depend on whether the Chapter 7 trustee needs to file lawsuits against creditors or others or sell assets like real estate, vehicles, or businesses.
Once the trustee has a pool of funds, the court will ask the creditors to file claims for what the debtor owes. The trustee will file objections with the court to any claim that is deficient or improper, and the court will hold hearings on them. The trustee mails checks to those creditors with allowed claims and will file a report after distributing funds. Only then will the court close the case.
Sometimes a bankruptcy doesn't go as planned. Here's what can happen.
Once the court closes your matter, you can re-open it under certain circumstances, including:
Learn more about reopening a bankruptcy case.
In Chapter 7 bankruptcy, the trustee or a creditor can file a complaint alleging that the court should revoke a discharge, and the court will withdraw it if you:
If an interested party wants to revoke your discharge because you failed to disclose or surrender assets or obey court orders, it must do so within a year of your discharge or the date your case is closed, whichever is later. After both sides present evidence and arguments at a hearing, the court will determine whether cause exists (like fraud) to revoke the discharge. If withdrawn, the debtor will be on the hook for discharged debts and exposed to creditor collections.
Chapter 13 benefits debtors and creditors because the repayment plan allows the filer to catch up on important debts, such as a late house or car payment. Instead of turning over assets to the trustee to sell, the filer makes regular payments to the Chapter 13 trustee for three to five years. The trustee sends payments to creditors who have filed proper claims.
The court will enter the discharge order after completion of the plan. Once the trustee distributes all funds to the creditors and files a final report with the court, the court will enter an order discharging the remaining balance of any dischargeable debts and close the case.
Within one year after a Chapter 13 bankruptcy discharge is granted, an interested party can ask the court to revoke a discharge if you:
In most cases, fraud in Chapter 13 bankruptcy involves lying on the bankruptcy petition, hiding assets, or failing to disclose all income sources. In addition to losing your discharge, committing bankruptcy fraud can result in forfeiture of property or even criminal prosecution.