Congratulations! Your Chapter 7 Bankruptcy Has Been Discharged. Now What?

If you are reading this, chances are that your Chapter 7 bankruptcy case has reached one of its most important milestones: Your Bankruptcy Judge has entered an Order of Discharge.

First, let me congratulate you! I know that getting to this point has not always been easy. For many of my clients, filing bankruptcy represents the end of a long period of financial stress, sleepless nights, collection calls, lawsuits, garnishments, and the constant worry about how to pay bills that simply have become impossible to manage.

Now, you have something very important: a fresh financial start.

But what exactly does your discharge order mean? What happens to your debts? What if a creditor continues to contact you? How long will it take for your credit report to reflect your bankruptcy? And, perhaps most importantly, what should you do now to make the most of this opportunity?

Let’s go through it.

1. What Does Your Bankruptcy Discharge Order Actually Mean?

Your Chapter 7 Bankruptcy Discharge Order is one of the most powerful documents you will ever receive.

It is an actual court order, signed by your Bankruptcy Judge, which legally eliminates your personal responsibility for most of the debts included in your bankruptcy case.

In other words, you no longer owe those debts. Your creditors cannot legally pursue you for payment of discharged debts, sue you to collect them, garnish your wages, or otherwise attempt to collect those obligations from you.

This is not simply a recommendation to your creditors or a temporary pause in collection activity. It is a legally binding court order.

Under Section 524 of the Bankruptcy Code, the discharge also creates what is commonly called the discharge injunction. This injunction permanently prohibits creditors from taking action to collect discharged debts as personal liabilities.

That is a very significant distinction. Before bankruptcy, creditors may have had the ability to sue you, obtain judgments, garnish your wages, levy bank accounts, and take other collection actions. Once your discharge is entered, those collection rights are generally gone with respect to the discharged debts.

Keep your Discharge Order!

I email every client a copy of their discharge order once it’s issued by the bankruptcy court. In addition, the court mails you a copy. I strongly recommend that you save the PDF of your this order somewhere you can easily find it and keep a printed copy with your important financial documents.

You may never need it again, but if a creditor questions whether a debt was discharged, you will have the court order available to provide proof.

Here is a link to a sample Chapter 7 Discharge Order so you can see what yours looks like:

Click Here to View a Sample Chapter 7 Bankruptcy Discharge Order

2. Your Creditors Have Also Been Notified

You are not the only person receiving notice of your discharge.

The Bankruptcy Noticing Center (BNC), which handles the distribution of bankruptcy notices on behalf of the Bankruptcy Court, also sends out the Notice of Discharge to the creditors and other parties entitled to receive notice in your bankruptcy case.

This means your creditors have been formally notified that your discharge has been entered.

You do not need to individually contact every creditor to tell them that you have received your discharge. The bankruptcy notification process takes care of that.

However, as I explain below, there are occasions when a creditor’s records are not updated immediately.

3. Which Debts Have Been Wiped Out?

One of the biggest benefits of Chapter 7 bankruptcy is that it eliminates your personal responsibility for most unsecured debts.

These commonly include:

• Credit card balances.
• Medical bills, hospital bills, and other healthcare expenses.
• Personal loans.
• Payday loans and other unsecured consumer loans.
• Past-due utility bills.
• Old collection accounts.
• Deficiency balances from repossessed vehicles.
• Certain debts arising from lawsuits and judgments.
• Other unsecured obligations that are not excluded from discharge.

If you were being sued, threatened with a lawsuit, or having your wages garnished because of a discharged debt, those collection efforts generally cannot continue after your discharge.

There are exceptions, of course, but the basic idea is that you are no longer personally responsible for the debts that have been discharged.

What Debts Are NOT Discharged?

Not every debt disappears in Chapter 7. Congress has specifically excluded certain obligations from discharge.

Some of the more common examples include:

Child Support and Spousal Support

Domestic support obligations, including child support and qualifying alimony obligations, are generally not dischargeable. Filing bankruptcy does not eliminate your responsibility to support your children or former spouse.

Student Loans

Most student loans are not automatically discharged in bankruptcy. There is a separate legal process involving an adversary proceeding in which the debtor must establish undue hardship. Although student loan discharges are possible in appropriate circumstances, they are not the usual result of a Chapter 7 discharge.

Certain Taxes

Some tax obligations survive bankruptcy. However, not all taxes are nondischargeable. Depending on the type of tax, when the return was due and filed, and other circumstances, certain older income tax obligations may qualify for discharge.

Certain Debts Involving Fraud or Misconduct

Debts arising from certain types of fraud, false representations, embezzlement, larceny, or willful and malicious injury may survive bankruptcy. Some of these debts require a creditor to file a timely adversary proceeding and obtain a determination from the Bankruptcy Court.

Certain Criminal Obligations or Governmental Fines or Penalties

Court ordered fines, Criminal fines, restitution, parking and traffic tickets and certain other obligations arising from certain governmental proceedings generally are not discharged.

These are examples, not an exhaustive list. The Bankruptcy Code contains several exceptions to discharge, and the circumstances surrounding a particular debt can matter.

What About Your Mortgage or Car Loan?

This is another important distinction.

A Chapter 7 discharge eliminates your personal liability on a mortgage or vehicle loan unless you reaffirmed the debt or another exception applies. However, it does not automatically eliminate the creditor’s lien against the property.

For example, if you kept your home and continued making your mortgage payments, the mortgage company generally retains its mortgage lien even though your personal liability on the underlying debt may have been discharged.

The same principle applies to vehicle loans.

This is why it is important to distinguish between eliminating personal responsibility for a debt and eliminating a creditor’s lien against property.

If you want to keep your house or car after filing your bankruptcy, be sure to make your monthly mortgage or car payment.

4. What If a Creditor Continues to Contact You After Your Discharge?

Occasionally, a client will call me and say something like:

“Walter, I just received another collection letter from a creditor. I thought my bankruptcy was over!”

Don’t panic. This sometimes happens.

In today’s world of automated emails, text messages, collection agencies, third-party servicing companies, and constantly changing computer systems, it can take some time for every creditor’s records to be updated.

Sometimes a collection letter or automated text message was already in the system before your discharge was entered. Other times, the original creditor has transferred the account to another collection agency or servicing company that has not properly updated its records.

Here is what I recommend:

Step One: Send the Creditor a Copy of Your Discharge Order.

If you receive a collection letter, email, or other communication concerning a debt that was discharged, send the creditor a copy of your Bankruptcy Discharge Order.

You can generally find the creditor’s mailing address or contact information on the collection notice.

Explain that the debt was included in your Chapter 7 bankruptcy and that the Bankruptcy Court has entered a Discharge Order.

Step Two: Keep a Record of Continued Collection Attempts.

If the creditor continues contacting you, keep copies of the letters, emails, and text messages.

Write down the dates and times of telephone calls. Keep track of the name of the person you spoke with and what was said.

Do not simply delete everything or assume that repeated collection attempts are something you must tolerate.

Step Three: Contact Me.

If providing the creditor with a copy of your Discharge Order does not resolve the problem, contact my office.

The discharge injunction is enforceable. Creditors are not permitted to disregard a Bankruptcy Court’s discharge order and continue collecting discharged debts as though your bankruptcy never happened.

Depending on the circumstances, continued collection activity may constitute a violation of the discharge injunction, and there may be remedies available through the Bankruptcy Court.

You did not go through bankruptcy just to continue dealing with the same creditors afterward.

Let me know if this happens, and we will address it.

5. How Long Does It Take for Your Credit Report to Reflect Your Bankruptcy Discharge?

This is probably one of the most common questions I receive after a Chapter 7 discharge.

My advice is to give the credit reporting agencies approximately six months to reflect the results of your bankruptcy discharge.

Your creditors, collection agencies, and the three major credit reporting agencies (Experian, Equifax, and TransUnion) do not necessarily update their records immediately.

Some accounts may show a zero balance relatively quickly. Others may continue to show an old balance or collection status for a while.

You may even see an account reported as discharged in bankruptcy while another account takes longer to update.

Don’t become overly concerned if everything does not change overnight.

Most importantly, remember this: Your Bankruptcy Discharge Order is a court order. Your credit report is not.

If your credit report continues to show a balance on a debt that was discharged, that does not mean you still owe the debt.

The discharge order controls your legal obligation, not the information currently appearing on a credit reporting agency’s computer system.

After approximately six months, I recommend obtaining copies of your credit reports and reviewing them to make sure your discharged accounts are being reported appropriately.

You can obtain your reports through the federally authorized website:

https://www.annualcreditreport.com

If you discover inaccurate information, you can dispute it directly with the credit reporting agency and the creditor reporting the account.

6. How to Optimize Your Fresh Start: What I Recommend You Do Now

Now comes the part that I really want you to pay attention to.

Getting your Chapter 7 discharge is a tremendous accomplishment, but the real benefit of bankruptcy is what you do with the opportunity afterward.

You have been given the ability to start over financially. I want you to make the most of it.

Here are some suggestions.

1. Stop Using Credit Cards to Finance Your Lifestyle

One of the biggest problems I see is people using credit cards to supplement their income.

When your income is not enough to cover your monthly expenses, credit cards can make it seem as though you have more money available than you actually do.

Eventually, the balances catch up with you.

After bankruptcy, try to live within your income. If you cannot afford something without borrowing money, seriously consider whether you should purchase it at all.

2. Establish an Emergency Savings Account

This may be the single most important financial habit you can develop.

Even putting aside $25, $50, or $100 every paycheck can make a difference.

Your car will eventually need repairs. Your furnace may stop working. You may have an unexpected medical expense or an interruption in income.

Before bankruptcy, many people relied on credit cards to handle these situations.

After bankruptcy, I want you to have some money set aside so that an unexpected expense does not put you right back where you started.

Work toward having at least three months of essential living expenses saved, if possible. You do not have to accomplish this immediately. Start small and build over time.

3. Be Careful About Rebuilding Your Credit

You may receive credit card offers shortly after your bankruptcy discharge.

Some lenders actively market to people who have recently completed bankruptcy because they know that many of those people have little or no outstanding unsecured debt.

You may receive offers for secured credit cards, regular credit cards, or even vehicle financing.

Some of these products can help rebuild your credit history. Others come with excessive fees, high interest rates, and unfavorable terms.

If you decide to obtain a credit card, consider starting with a secured credit card from a reputable financial institution.

Use it for a small purchase, pay the balance in full every month, and avoid carrying a balance or paying interest.

You do not need to borrow money or pay interest to demonstrate responsible credit management.

4. Pay Your Bills on Time

This sounds obvious, but it is extremely important.

Your payment history is a significant component of your credit score.

Pay your rent or mortgage, utilities, insurance, car payment, and other ongoing obligations on time.

If possible, set up automatic payments or calendar reminders so you do not accidentally miss a due date.

Your goal should be to establish a consistent history of responsible financial management.

5. Do Not Immediately Run Out and Finance a New Car

I understand that sometimes you need a vehicle. Especially here in Metro Detroit, having reliable transportation is practically a necessity.

But be careful about immediately financing a new or expensive vehicle simply because your bankruptcy has eliminated your old debts.

Some lenders will offer financing to people who have recently received a bankruptcy discharge. That does not necessarily mean the loan is a good deal.

Interest rates may be high, and the monthly payment may be more than you can comfortably afford.

If you need a vehicle, shop carefully, compare financing offers, and consider the total cost of ownership, including insurance, maintenance, and repairs.

Remember, the purpose of bankruptcy was to improve your financial situation, not to replace old debt with new debt.

6. Avoid Cosigning Loans for Other People

This is an important one.

You may have a family member or friend who asks you to cosign a vehicle loan, personal loan, or credit card application.

Think very carefully before agreeing.

When you cosign, you are generally accepting legal responsibility for the debt if the primary borrower does not pay.

Even if you trust the person completely, circumstances can change.

You have worked hard to obtain your fresh start. Do not put it at risk by taking responsibility for someone else’s financial obligations.

7. Review Your Budget and Know Where Your Money Goes

One of the best things you can do after bankruptcy is develop a realistic monthly budget.

List your monthly income and your necessary expenses.

Know how much you spend on housing, utilities, groceries, insurance, transportation, and other recurring expenses.

You do not need an elaborate financial planning program. Even a simple spreadsheet or written budget can help.

The objective is to make sure that your expenses do not consistently exceed your income.

8. Be Cautious About Payday Loans and High-Interest Financing

You may be surprised how quickly high-interest loans can recreate the same financial problems you just eliminated.

Payday loans, title loans, rent-to-own agreements, and other high-cost financing arrangements can be particularly dangerous.

If you find yourself needing these products to make ends meet, take a step back and examine your budget before borrowing.

Your bankruptcy discharge has given you an opportunity to break the cycle of debt. Do not allow these types of loans to pull you back into it.

9. Protect Your Credit and Your Identity

Keep an eye on your credit reports periodically.

Consider placing a free security freeze with all three major credit reporting agencies if you are concerned about identity theft.

A credit freeze can help prevent someone from opening new credit accounts in your name without your knowledge.

Also, be careful about sharing your personal information, Social Security number, and banking information.

10. Remember What You Learned From the Bankruptcy Process

I know that nobody plans on filing bankruptcy.

Life happens. Divorce, illness, unemployment, reduced income, unexpected expenses, and other circumstances can create financial problems that are difficult or impossible to overcome without help.

Whatever brought you to my office, I hope the bankruptcy process has given you a better understanding of your finances and the importance of managing debt.

There is no shame in having filed bankruptcy. What matters is what you do going forward.

7. One Very Important Thing to Remember: You Generally Cannot Receive Another Chapter 7 Discharge for Eight Years

I want to make sure you understand one final point.

Under Section 727(a)(8) of the Bankruptcy Code, if you receive a Chapter 7 discharge, you generally cannot receive another Chapter 7 discharge in a case filed within eight years of the filing date of your previous Chapter 7 case.

The eight-year period is measured between the filing dates of the two bankruptcy cases, not eight years from the date you received your discharge.

There are different rules for certain Chapter 13 filings and other repeat-filing situations, but the important point is that Chapter 7 is not something you can simply file again whenever you accumulate more debt.

You have received a valuable opportunity to eliminate your debts and start over. Take advantage of it.

My hope is that you will never need to file bankruptcy again.

8. Congratulations on Your Fresh Start!

I want to personally congratulate you on reaching this point.

I know that many of you came to my office feeling overwhelmed, embarrassed, frustrated, or simply unsure where to turn.

I also know that bankruptcy can be an emotional process. For some people, the decision to file is one of the most difficult financial decisions they have ever made.

But now you have your discharge.

The collection calls should stop. The discharged debts are gone. The threat of garnishments and lawsuits based on those discharged debts is behind you. You can begin concentrating on your future instead of worrying about the financial problems of your past.

If you have questions about your discharge, receive a collection notice that you believe violates the discharge injunction, or encounter a problem with a creditor, please do not hesitate to contact my office.

I am always happy to help.

And finally, I will leave you with one last thought.

I love all of my clients, but I really don’t want to see you in my office again!

That is not because I don’t enjoy seeing you. It is because I want you to take this fresh start, make the most of it, and enjoy the financial peace of mind that you deserve.

Congratulations, and best wishes for your future!

Walter Metzen
Law Offices of Walter Metzen
Board-Certified Specialist in Consumer Bankruptcy
313-962-4656

The information in this article is intended for general educational purposes and is not a substitute for legal advice concerning a particular debt or bankruptcy case.