The object of a bankruptcy proceeding is to wipeout or restructure unmanageable debt for borrowers who have no way to pay. When debts are successfully wiped out, or discharged, many people think their bankruptcy case is over. But the fact is, your bankruptcy case is not closed just because your debts have been discharged.
Understanding a Bankruptcy Discharge
When debts are discharged in bankruptcy it means you are no longer liable for those debts. You no longer have a legal obligation to pay the discharged debts, and creditors are prohibited from making any further attempts to collect them.
Not all debts can be discharged in bankruptcy, and will instead be paid with your liquidated assets or over time on a bankruptcy payment schedule. Debts that cannot be discharged are tax debts, student loans, past due child or spousal support, any credit that was obtained by fraud, penalties owed for government benefits that were obtained by fraud, debts arising from the death or serious injury of another that you caused while intoxicated, and any debts that were purposely or mistakenly not filed with your bankruptcy petition.
So When Is My Bankruptcy Case Closed?
When your bankruptcy case is actually closed depends on when the court enters an order closing it. The closing order depends on the circumstances of your bankruptcy, and whether you are filing Chapter 7 or Chapter 13.
A Chapter 7 bankruptcy involves liquidating all of your non-exempt assets, and paying your debtors in a statutorily mandated order of priority with the resulting funds. Most people filing bankruptcy don’t have any non-exempt assets. Once it’s determined that a debtor has no non-exempt assets, the bankruptcy trustee will file a report with the court reflecting this. At that point, the court will generally enter the closing order and the bankruptcy case will be officially closed.
In the event that a debtor does have non-exempt assets to liquidate, the bankruptcy proceeding could remain open for months or years. However long it takes to gather all of the non-exempt assets, sell them, and work out with the creditors who is entitled to what portion. After the assets have been gathered, sold, and distributed, the bankruptcy trustee will file a report with the court. Then, the court will officially issue an order closing the bankruptcy case.
In a Chapter 13 bankruptcy case, instead of liquidating non-exempt assets and paying your creditors, you make regular payments towards your debts for up to five years according to a court approved payment schedule. After all of your payments are made and any other obligations are fulfilled, any remaining debts will be discharged. After, the trustee files a final report with the court, and the court issues a closing order, officially closing the bankruptcy.
Discharging your debts in a bankruptcy proceeding is a major step in the process. But once it happens, don’t dismiss any other obligations of your bankruptcy. Your case is not closed just because your debts have been discharged.
Call the Cleveland Bankruptcy attorneys at Luftman, Heck and Associates today to discuss your options at (216) 586-6600 or email us at firstname.lastname@example.org.