When is a bankruptcy officially discharged?

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
What is a discharge date?   -- Darrel 

Answer Dear Darrel,
Because I'm quite certain that you can easily and quickly look up a definition, I bet there is a deeper reason you're asking this question. Not merely out of random curiosity or to solve a crossword puzzle, but because you filed (or are considering filing) for bankruptcy. After all, a discharge is the formal forgiveness of allowable debts that occurs after a bankruptcy petition has been filed and granted.

As for the actual date of discharge, it depends on the type of bankruptcy you pursue. The most common variety is Chapter 7, which is a liquidation of liabilities. As long as you qualify, you can walk away from most unsecured financial obligations. Complete the paperwork, traipse through the court process, and the discharge occurs approximately four months from that point. Then, you're done -- you no longer owe money to those creditors you included in the bankruptcy.

A Chapter 13, on the other hand, is an adjustment of debts, not a complete liquidation. With it, you would pay some creditors at least a portion of what you owe through the courts, and at the end of a three- to five-year time frame, you would be able to discharge the remainder (as long as they are unsecured and allowable debts). After completing the chapter 13 payment plan, remaining debts will be assessed by the court. The discharge, assuming it is approved, will occur soon afterward.

Now, you may be wondering why you don't have an immediate discharge as you would with the Chapter 7. Where's the payoff for not paying? The answer is complicated, but typically it's because the debtor isn't eligible to use a Chapter 7 or wants to keep assets they'd be forced to forfeit in a Chapter 7.

Let's talk about the discharge date as an emotional marker, too. Can you imagine how it will feel to receive notice that you no longer have to send money to those you owe? Jubilation! At that moment, you would know for sure that every penny of your income could be applied to your current bills, rather than to your credit card company, doctor's office or collection agency. After struggling so long to meet your expenses as well as your debts, you have much more to apply to your essentials, such as groceries, gas and housing costs.

Then again, not everyone feels such joy at seeing that date. The range of emotions is broad. I've talked with many people who filed for bankruptcy who also experienced depression and guilt.

Another important date to be aware of regarding a bankruptcy is how long it will appear on a consumer credit report. It's not when the debts are discharged, but when you filed. For a Chapter 7, a notice is listed on your credit report for 10 years. For Chapter 13, it will show up for seven years. During the time the bankruptcy is being reported, your credit rating will be negatively affected, though as the years pass it will have less and less impact. When it's gone, it's over. Then you can really celebrate.

See related: Your map through Chapter 7 and 13 bankruptcy

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Updated: 02-23-2019