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. For most people who file bankruptcy, the discharge is the last court action that directly affects them. And in many cases, the court will close the case soon after the entry of discharge. But in other cases, the bankruptcy will continue for some time after the discharge. In fact, for creditors, the trustee, and the court, the case may be just getting underway.
The bankruptcy discharge is an order from the bankruptcy court that does two things:
In many Chapter 7 cases, all of the debtor’s assets are exempt, which means the trustee will not require that the debtor give up assets to pay creditors. This is referred to as a no-asset Chapter 7. In a “no asset” bankruptcy case, when the court enters the discharge, the trustee files a report with the court stating that there were no assets to administer. Then, in most cases, the court enters an order closing the case. At this point, the case is no longer active.
In some cases, the debtor will have nonexempt assets that the trustee will have to gather and sell. The process of gathering and selling assets can take months or years. The Chapter 7 trustee might have 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 the objections. When the claims are resolved, the trustee then mails checks to those creditors whose claims have been allowed by the court. That process may also take months or years.
When the nonexempt the assets have been gathered and liquidated (sold for cash), all the claims have been filed and resolved, and funds have been distributed, the trustee will file a report with the court. Only then will the court close the case.
If you file a Chapter 7 case with nonexempt assets, you must cooperate with the trustee’s efforts to find, liquidate and distribute your nonexempt assets. This is true even after you receive your discharge. If you fail to cooperate or the trustee discovers that you obtained your discharge by fraud, the trustee (as well as the United States trustee or your creditors) can ask the court to revoke your discharge even if it has already closed the case.
In Chapter 7 bankruptcy, your discharge can be revoked 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.
The trustee or a creditor must file a complaint with the court and prove that there is cause for revoking your discharge. You will receive notice of the hearing and have an opportunity to oppose it. The court will hold a hearing where both sides can present evidence and arguments as to why the discharge should or should not be revoked.
Based on the evidence presented, the court will determine whether cause exists (such as fraud) to revoke your discharge. If your discharge is revoked, you will be on the hook for paying back any debts that were included in the discharge and creditors will be free to pursue you once again to collect those debts.
Once the court closes your bankruptcy case, you can be re-open it under certain circumstances. A few examples of when a court might re-open your case include:
To add a debt that you forgot to list. Debts that you don’t list in the bankruptcy case are not discharged. If you forgot to list a debt, you may ask the court to re-open the case to correct that oversight and to officially notify the creditor of the bankruptcy case.
To liquidate an asset you didn’t list. Sometimes, the trustee or a creditor will discover an asset that you didn’t include in your bankruptcy paperwork. The court will normally reopen the case if liquidating the asset will benefit the creditors. Learn more about reopening a bankruptcy case.
Chapter 13 cases work differently than Chapter 7 cases do. Instead of turning over assets to the trustee to liquidate, you make regular (usually monthly) payments to the trustee for three to five years based on a court-approved payment plan. The trustee sends payments (again, usually monthly) to those creditors who have filed proper claims with the court. Chapter 13 benefits debtors as well as creditors because the repayment plan allows you to catch up on important debts, such as a late house or car payment.
If you make all of your payments according to your payment plan and fulfill certain other obligations, the court will enter the discharge order. Once the trustee distributes all remaining funds to the creditors and files a final report with the court, the court will close the case.
Within one year after your Chapter 13 bankruptcy discharge is granted, a party in interest can ask the court to revoke your discharge if you:
In most cases, fraud in Chapter 13 bankruptcy involves lying on your bankruptcy petition, hiding assets, or failing to disclose all sources of income. In addition to losing your discharge, committing bankruptcy fraud can result in forfeiture of your assets or even criminal prosecution. As a result, make sure to complete your bankruptcy papers accurately, disclose all assets, and be honest throughout the entire bankruptcy process.