When facing Chapter 7 bankruptcy, many debtors are offered the ability to discharge their debts, releasing them from full payment in return for penalties associated with bankruptcy that are determined by the court. Compared to Chapter 13, Chapter 7 bankruptcy provides a more extensive, more complete discharge system that will erase most types of debt that a debtor can incur. However, there are several exceptions to commonly granted discharges that can either be established by the court or by a debtor-creditor agreement.
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Known as reaffirming a debt, a debtor may set up a payment plan with a particular creditor in order to retain a certain property. In these reaffirmations, debtors, for example, may keep their cars or trucks in return for maintaining regular payments and not discharging that debt. Although this means that a debtor will essentially remain in debt, even after bankruptcy, it can also prove useful when a vehicle may otherwise become a repossessed property.
While debtors can control the reaffirmation process in conjunction with the court's assent, the law may opt to not discharge a debt if illegality or unsavory practices are suspected on the debtor's behalf. There are several grounds for a dischargeable debt to be denied by the court, requiring the debtor to continue regular payments, or suffer additional penalties.
Perhaps one of the most obvious problems that can get a debt discharge denied is evidence of debtor fraud. If the creditor or courts find that a debtor has intentionally not been keeping adequate records, failing to track abrupt losses of money, or outright lying about their finances, a debt discharge may be immediately denied. Similarly, failure to adhere to court orders can result in a debt discharge's denial.
Under normal circumstances, a law-abiding debtor will see the many of his or her debts removed in Chapter 7 bankruptcy. However, the exceptions to this can prove troubling and confusing. For more information about how bankruptcy can remove these debts, contact a bankruptcy attorney.
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