What Does The Term Discharge Mean?

Bankruptcy, a legal proceeding involving a person or business unable to repay outstanding debts, involves a series of technical terms that are often confusing to many. One such term is discharge. But what does the term discharge mean in the context of bankruptcy?

Definition of Discharge in Bankruptcy

In the simplest terms, discharge in bankruptcy refers to the legal release of a debtor from most, if not all, existing obligations to pay their debt. This release takes effect once the debtor has fulfilled all the requirements stipulated in the Bankruptcy Act.

The Process of Bankruptcy Discharge

Bankruptcy is not an overnight event. It involves a series of steps, with the discharge being the final stage. The debtor must complete all the steps and fulfill all obligations set out within the Bankruptcy Act before receiving a discharge.

Debt Obligations and Exceptions

While a discharge releases a debtor from the responsibility of paying back their debts, it is important to note that this does not apply to all types of debt. There are two main categories of debts that are not absolved by a bankruptcy discharge:

 

Secured debts on assets you retain: This includes mortgage payments on homes and payment plans for financed cars. Simply put, if you keep an asset after filing for bankruptcy, any secured debt attached to that asset remains your responsibility.

Specific debts listed under Section 178 of the Bankruptcy Act: These are a tightly defined group of debts such as alimony, child support, debts incurred through fraud, court-awarded penalties, and student loans.

 

What Debts are Discharged?

All other debts that do not fall under the above two categories are discharged when the debtor receives their discharge. This includes, but is not limited to, credit card debts, lines of credit, and debts owed for income tax.

Conclusion

Understanding the term discharge in the context of bankruptcy is crucial for anyone facing financial challenges. A discharge, while not a blanket absolution, does provide significant relief from numerous debt obligations. It is, however, imperative to understand the process, the obligations, and the exceptions that come with it.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.