The goal of a bankruptcy case is to obtain a discharge of debts, to wipe the slate clean.
When a debt is discharged, it is no longer enforceable against the debtor personally.
When you have personal liability for a debt, a creditor with a judgment can use legal processes, like levy and garnishment, to reach your non exempt assets and earnings. The law allows collection of a judgment even though no assets were pledged as collateral and the debt was originally unsecured.
The bankruptcy discharge eliminates the debtor’s personal liability for a discharged debt.
Liens or in rem liability
Even though personal liability is wiped out, most liens (the liability of an item of property for a debt secured by that property) passes through bankruptcy unchanged. Personal liability is gone, but the lien remains.
So, after a bankruptcy discharge, a lien may remain a charge on an asset the debtor owned when the case was commenced, but that debt cannot become a lien on any assets that the debtor acquires after the bankruptcy discharge.
A home equity loan remains as a lien on the real property after a bankruptcy discharge. If the loan is not paid, the lender cannot sue the discharged debtor to attempt to collect the debt out of current wages because the discharge has eliminated the debtor/borrower’s personal liability for the loan.
The creditor can foreclose on the lien on the pledged property, however.
A judgment lien may remain a charge on assets owned before the bankruptcy, but does not attach to assets acquired after the bankruptcy is filed.
The bankruptcy discharge is a court injunction against certain actions relating to debts that existed before the bankruptcy was filed.
The discharge injunction replaces the automatic stay that comes into place when a bankruptcy case is commenced.
The discharge injunction prevents the creditor from beginning or continuing any law suit to enforce a discharged debt against the debtor . Any judgment as to a debt arising before the bankruptcy was commenced is void after the discharge.
The discharge encompasses not only debts that were liquidated as of the filing of the case, but any liability that arises from events before filing so long as the affected creditor, or would-be creditor, got notice of the bankruptcy.
Example: the liability of the debtor for an automobile accident in which he was at fault is discharged, even though there has not been a trial with respect to the accident.
Likewise, the liability of the debtor on the pre petition guaranty of someone else’s debt is discharged.
Debts not discharged
This entire discussion, of course, relates to dischargeable debts.
Some debts are not dischargeable in bankruptcy. See 11 U.S.C. 523 for the list of non dischargeable debts. Non dischargeable debts are unaltered by the bankruptcy discharge and remain just as valid as they were before the bankruptcy.
Life after bankruptcy
What will you do with discharge?
Debts that survive bankruptcy
What does it take to file bankruptcy?
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