What Is Bankruptcy and How Does the Process Happen?

Do you understand bankruptcy? It is a legitimate federal procedure designed to provide companies and individuals a new start from unmanageable loans. It is a source for the companies to wind up assets and business in a logical way. Often the subject of loathing and fear, the bankruptcy system is vital to the operation of  our modern economy. It removes the load of excessive debt and assists in maintaining the flow of credit in the economy. Bankruptcy court operates the system of bankruptcy. Bankruptcy judges supervise the court. Federal Judicial Committees appoint them to 14-year terms.

What Is Bankruptcy Discharge?

Bankruptcy discharge is an order of a court issued at the end of a Chapter 7 or Chapter 13 case. It dismisses you from your responsibility to pay the loans. You need to complete all the formalities and requirements of the court for your case of bankruptcy to be discharged. Creditors are not allowed to take action to collect their debt once the court has discharged the order. Lenders and creditors apply any liens attached to secured debt. They have permission to sell any assets attached to a lien.

Which Loans Are Discharged?

The process of bankruptcy starts when you file Chapter 7 or chapter 13 bankruptcy.  Your lawyer will guide you into which bankruptcy is suitable for you.  Your trustees divide your non-exempt property among your lenders in Chapter 7 bankruptcy and the remaining amount of the debt will be discharged.

Another option is Chapter 13 bankruptcy. In this option, a person enters a repayment plan. As per this plan, he repays all of the amount or a maximum amount. The remaining amount will be discharged at the end of the plan.

You can apply for a discharge in bankruptcy that includes all unsecured debts, contracts, and obligations under a lease, personal debts, lawsuit judgments, medical bills, and credit card debts. The majority of people don’t know which debts can be discharged; the details are given below:

  • You can apply for the discharge of domestic obligations such as loans payable under a marriage settlement contract, alimony and child support.
  • Penalties, certain fines, and restitution from the result of criminal activity
  • Some taxes such as business tax, property taxes, fraudulent income taxes
  • DUI charge loans
  • Court costs
  • Association fees, homeowners and condo fee charges
  • Retirement plan debts

Chapter 13 VS Chapter 7

In Chapter 7, some debts are not discharged, but in Chapter 13, these debts can be discharged. It contains loans for retirement, homeowners and condo association fee, tax, court fee, divorce agreement, and others.

How Long Does It Take to Complete the Process?

As per the courts, if you apply for Chapter 7 bankruptcy, it takes 4 months after the date the bankruptcy petition is filed. If someone applies for Chapter 13, the discharge happens after making payments as per your bankruptcy plan have been organized. Afters 3 to 5 years, if you fail to complete the target of Chapter 13 bankruptcy, then the court denies this discharge of bankruptcy.


Once the court allows a bankruptcy discharge, a copy of the order is sent to the trustee’s attorney, bankruptcy trustees and the creditors. As per this order, the creditors are not allowed to harass you or demand their loan or they will be punished.

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