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What Does Bankruptcy Fully Discharged Mean

What Happens To Tax Liens In Chapter 7

What Does It Mean If My Bankruptcy Case is Dismissed?

Tax liens survive Chapter 7. If the tax debt was dischargeable, the IRS will never try to collect on the debt, but the lien will stay attached to your property.

If you have a tax lien, pre-bankruptcy planning becomes invaluable. We can employ some advanced strategies to remove the liens prior to filing the bankruptcy. You can then file your bankruptcy and have the tax debt discharged.

Tax debts in bankruptcy are complex. Most bankruptcy attorneys do not even understand them. Since we are also tax resolution attorneys, we deal with the IRS all the time. If you have a tax issue, we will have a discussion about your tax debt prior to filing the bankruptcy.

What Happens If You Arent Discharged From Bankruptcyundischarged Bankrupt

If you dont follow through and obtain your discharge, youre left in an uncertain legal position.

This puts your financial affairs on hold until your situation is sorted out. You many need to hire a new trustee or even a bankruptcy lawyer, and it can become a lengthy and costly process.

There are reasons why a discharge may be delayed, but becoming an undischarged bankrupt is something you want to avoid.

Speak with your trustee if theres a chance you wont be able to fulfill all of the requirements.

Fans Of Nbcs The Office May Remember An Episode In Which Michael Scott Yells To His Office I Declare Bankruptcy Unfortunately Theres A Lot More To Fixing A Heap Of Debt Than Making A Loud Proclamation Filing For Bankruptcy Is A Complex Legal Process That Might Save You Money But It Also Comes With Serious Consequences Youll Want To Consider

The first step in determining whether a bankruptcy is right for you is defining what it is. Here are a couple important terms to know:

  • Bankruptcy is a legal means by which someone with a large burden of debt can get out from under it. In a 1934 case , the U.S. Supreme Court defined the purpose of bankruptcy as giving a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. In other words, its an opportunity for a financial do-over.
  • If bankruptcy is the end goal, a bankruptcy discharge is a tool used to accomplish it. A bankruptcy discharge is a court order that releases a debtor from personal liability for specific debts. It legally prohibits a lender or creditor from taking any action to collect the debt in question.

Sound too good to be true? In several important ways, it is. For one, the bankruptcy shows up on your credit reports for seven to 10 years, depending on the type of bankruptcy you file, and will almost surely harm your credit scores. It also only applies to certain specific types of debts, so its not a catch-all remedy.

Follow along to learn more about discharged debt and whether a Chapter 7 or Chapter 13 bankruptcy might make sense for you. If in doubt, work with a qualified or bankruptcy lawyer to ensure you make the best decision for your needs.

Do you really need to talk to a credit counselor if youre considering bankruptcy?

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Will A Chapter 13 Discharge Remove A Judgment From My Credit Report

Yes! A Chapter 13 removes judgments from your credit report. If you are subject to a judgment lien, you may need to avoid the lien through the Chapter 13 Plan in order to remove it completely. Your Chapter 13 bankruptcy attorney can discuss this with you and determine if you qualify for lien avoidance.

Get Your Credit Report Fixed

Bankruptcy Discharge

So, what to do next?

Youve gotten your reports and check them for these errors and youve found one or more of them . No worries, get free help drafting written disputes to your creditors and the bureaus and set your problem up to get fixed as soon as possible!

If it takes a lawsuit to fix it, remember, the law requires that the Credit Bureaus pay the costs and attorneys fees for that .

Youve done the work of going through bankruptcy make sure you get the Fresh Start that you deserve!

More on life after bankruptcy

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Keep Your Discharge Order After Bankruptcy

It’s not a bad idea to keep your discharge paperwork somewhere you can easily find it because you might need it in the future. For instance, a lender might ask for a copy if you apply for credit or a home mortgage. Also, you’ll want to be able to provide the following to any creditor that calls to collect a discharged balance:

  • bankruptcy case number
  • filing date, and
  • discharge date.

The information allows the creditor to verify the bankruptcy and that the discharged debt is no longer collectible. You’ll find the filing date and case number at the top of almost any document you receive from the court. The discharge date will appear on the left-hand side of the discharge order immediately next to the issuing judge’s name .

Why does the filing date matter? Qualifying debts that you incur before you file for bankruptcy are eligible for discharge. Any debts that arise after you file for bankruptcy aren’t included in the bankruptcy.

Why does the discharge date matter? Just because you file for bankruptcy doesn’t mean that you’ll receive a discharge, as discussed above. Being able to provide the discharge date will help you resolve a collection issue more expediently.

What Happens To My Mortgage In Chapter 7

The fact that the lien stays attached to the property leads us in an interesting position. Technically, you no longer owe the debt. The bank can never sue you for defaulting on your mortgage. On the other hand, if you want to keep the house, you will need to pay the mortgage. If you dont pay the mortgage, the bank can still foreclose even though the debt is discharged.

If you wanted to walk away from the house without paying the mortgage, you can. Since the debt is discharged, you will never be sued for a deficiency judgment. The bank will foreclose on the home, but will not ask you to pay.

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Why Do You Need To Reaffirm Your Debt

Filing for bankruptcy eliminates your liability to pay a discharged loan but the lien remains. So, lenders have a legal right to repossess the assets used to secure a debt. If you cannot afford to lose that asset, you should consider going into a reaffirmation agreement with your lender.

Before The Bankruptcy Abuse Prevention and Consumer Protection Act was passed in April 2005, debtors may continue to pay the secured loan after bankruptcy to avoid default. But the new provision changed the rules. Filing for bankruptcy puts you in default even if you are current on your loan payments.

A reaffirmation agreement helps protect your property from repossession provided that you make timely payments.

Where Bankruptcy Doesnt Help

What is a Bankruptcy Discharge

Bankruptcy does not necessarily erase all financial responsibilities.

It does not discharge the following types of debts and obligations:

  • Loans obtained fraudulently
  • Debts from personal injury while driving intoxicated

It also does not protect those who co-signed your debts. Your co-signer agreed to pay your loan if you didnt, or couldnt pay. When you declare bankruptcy, your co-signer still may be legally obligated to pay all or part of your loan.

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A Bankruptcy Discharged: First And Second Bankruptcy

When an insolvent debtor files for bankruptcy for a second time, you cannot be discharged after a nine months bankruptcy period. When you dont need to pay the Trustee any surplus income payments, a second bankruptcy lasts for a minimum of 24 months. A second-time bankruptcy filer with surplus income must make those payments for 36 months to qualify to get their bankruptcy discharged.

A third or subsequent bankruptcy follows the same timeline as a second bankruptcy. There is, however, a high probability that the Trustee or creditors will oppose the discharge. Where there is opposition, there must be a court bankruptcy discharge hearing and the court can impose any conditions it deems appropriate.

Why Is My Spouse Getting Calls From My Creditors

Your spouse may have signed an agreement or contract either co-signing or jointly signing for liability. For example, you may have a supplemental credit card for your spouse or your spouse may be a guarantor on one of your loans. If so, your spouse is responsible for paying the balance of this debt.

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Mortgage & Secured Loans Are Excluded In Bankruptcy

The approach to secured debt differs from unsecured debt. A secured debt is a loan that has an asset or collateral involved, a mortgage or car loan, for example.

Secured debts are an exception to debts you can discharge through bankruptcy.

Here is what you need to know about secured debts and bankruptcy:

First, no secured lender is permitted to cancel your loan based on a declaration of bankruptcy alone.

As long as you continue to make your monthly mortgage or car loan payment you can keep those assets. If you are current on your mortgage, you should also be able to renew your mortgage with your existing lender, although that decision is ultimately up to your lender.

If you are drowning in other types of debt, you may find filing bankruptcy helps improve your finances enough to be able to keep up with your monthly car and house payments.

Home equity is an asset in your bankruptcy. If you have a significant amount of equity in your home, then bankruptcy may not be the right solution to eliminate your debt. You may want to use that equity to consolidate or restructure your debts through a consumer proposal instead.

A consumer proposal is a way to keep your assets and still eliminate debt. Book a free consultation for a review of your debts and situation today.

Period Applicable Until Discharge

What Does Bankruptcy Discharge Mean?

The bankrupt may apply to court at any time for discharge from bankruptcy , and the court may grant it, either fully or conditionally.

In the case of first-time or second-time bankrupts, discharge occurs automatically as follows:

Automatically discharged

Type of bankrupt

The following debts are not released on discharge:

  • any fine, penalty, or restitution order imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail
  • any award of damages by a court in civil proceedings in respect of
  • bodily harm intentionally inflicted, or sexual assault, or
  • wrongful death resulting therefrom
  • alimony or alimentary pension
  • support or maintenance payments
  • any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity
  • any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation
  • liability for the dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee
  • student loans, where the date of bankruptcy occurred
  • before the date on which the bankrupt ceased to be a full- or part-time student , or
  • within seven years after the date on which the bankrupt ceased to be a full- or part-time student
  • any accrued interest on any of the above
  • In the case of student loans, the seven-year period noted above, on application to the court, may be reduced to five years, if the court is satisfied:

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    What Can Prevent Your Discharge

    A creditor, the Superintendent of Bankruptcy, or your trustee can object to your discharge if you have not completed your required duties, your creditor questions your transactions before bankruptcy, or you committed an offence under the Act.

    If your discharge is opposed, a court hearing in bankruptcy court will be held, and a bankruptcy judge or registrar will determine the conditions of your discharge. Those conditions may include a longer bankruptcy period, or you may be required to make additional payments.

    The outcome of a court hearing could be an:

    • Automatic discharge

    Is Debt Discharged In A Chapter 7 Taxable

    No! One of the greatest things about bankruptcy is that your debt is discharged tax free. If you were to settle your debt with your debt collectors, you would receive a 1099 at the end of the year. You would have to pay tax on any money forgiven by the debt collector. In bankruptcy, the discharge makes it so that the debt forgiveness is not taxable.

    I got a 1099 from my creditor even though my debt was discharged in bankruptcy. What do I do?

    This happens. Its an accounting issue for the creditor. No worries though. You can simply complete an IRS Form 982 when you complete your tax returns to explain you have a bankruptcy discharge. If you file this form, you wont have to pay tax. If we file your taxes for you, we will do this for you so you dont have to worry about it.

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    Who’s Filed For Bankruptcy

    Almost eight per cent of non-retired Canadians between the ages of 45 and 64;;or more than 480,000 people;;have gone through at least one bankruptcy in their lives. Statistics Canada

  • My credit rating will be ruined if I file for bankruptcy. Creditors sure don’t like to see a bankruptcy notation in someone’s credit file. But if you’re many months behind in paying your bills, collection agencies are calling and you’re not able to pay back anything close to what you owe, your credit rating will already be a disaster. For the record, in most provinces a bankruptcy notation remains on your credit report for six years after you’re discharged . Arranging a consumer proposal remains on the credit file for at least three years after it’s been satisfied . Even entering into a debt management plan through a credit counselling agency gets a notation on a credit report.
  • Bankruptcy erases all your debts. Definitely not true. Some debts cannot be discharged in a bankruptcy filing. They include secured debts like mortgages or car loans, alimony, spousal and child support obligations, court fines, claims arising from an assault, or student debts, unless you’re been out of school for at least seven years .;
  • In the end, if you’re told that the best solution to your financial woes is a bankruptcy filing, don’t despair. Bankruptcy laws were set up to allow people in dire straits to wipe their slates clean and start fresh.

    Your Bankruptcy Discharged But Wait


    Well, that took no time at all. Last week I told you about a bankruptcy discharge hearing I attended where the bankrupt person had his bankruptcy discharged by the Master in the Ontario Superior Court of Justice In Bankruptcy and Insolvency.

    The Masters decision was released on August 13, 2021. On August 20, 2021, we received the Notice of Motion of the opposing creditor appealing the Masters decision to give this person his discharge from bankruptcy. That is their right.

    In this Brandon Blog, I want to discuss the reasons for the opposition to the fact that this bankrupt had his bankruptcy discharged and my thoughts on one scenario of how this may play out. First, I just want to refresh your memory about the bankruptcy process and specifically how the discharge under bankruptcy law in Canada process works. Then I will get into this real-life story.

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    How A Bankruptcy Discharge Affects Credit

    Once you file for bankruptcy, a record of it will appear in your credit files and will remain there for a period of time. Chapter 7 bankruptcies remain on your credit reports for 10 years from the initial date of filing, and Chapter 13 bankruptcies stay on your reports for seven years from the date of filing.

    As long as a record of the bankruptcy is listed in your reports, it will have a negative impact on your credit scores. Once you receive a discharge for the bankruptcy, the record will change in your credit file and a record of the discharge will appear. Each of the accounts discharged as part of the bankruptcy should also be updated to show a zero balance.

    If you’ve received a bankruptcy discharge and do not see a record of it in your credit reports, you can request an update to your credit reports with the three main credit bureaus . To process this update with Experian, you’ll be required to provide a “schedule” document from your bankruptcy records to show evidence of the debts included in your discharge.

    If you’re not sure what appears in your credit file, consider getting a free copy of your credit report and score from Experian to see what’s recorded in your credit history. If your report contains any errors, make sure to file a dispute with one or more of the three main credit bureaus to get the mistake removed from your file as soon as possible.

    Will A Chapter 7 Discharge Remove A Vehicle Repossession From My Credit Report

    Yes! A Chapter 7 will remove any negative items regarding your repossession. It will remove the indication of the repossession itself, but also the missed payments leading up to the repossession. The Chapter 7 will also prevent you from being sued for a deficiency judgment and will prevent you from being taxed on any deficiency that is forgiven.

    Moreover, a Chapter 7 can help you get a new car loan! Its unbelievable to a lot of my clients, but we see people get car loans the day we file a Chapter 7.

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