Blonch

A debtor who has received a discharge may voluntarily repay any discharged debt. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated.

A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the United States trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge.

Yesterday President Obama announced the (forced) resignation of GM’s long-tenured CEO and Chairman, Rick Wagoner along, with a demand that the company take stronger action in restructuring in the next 60 days or face bankruptcy. At the same time he guaranteed both GM and Chrysler’s warranty programs and provided interim funding to keep both companies going, albeit on different paths as he announced the arranged marriage for Chrysler with Fiat in the next 30 days. This is huge news in economics, investments, politics, and nearly any other arena. Rush Limbaugh weighed in with the retail store policy, “if you break it you bought it.” President Obama just took away GM’s leadership and then said “you have to do better, and quickly.” If the President is promising sweeping changes in taxes, regulation, and health care to go along with taking control of businesses that are too large to fail, how does anyone plan for and invest in the future without knowing what the ground rules are going to be? The markets reacted strongly to yesterday’s announcements, broadly losing over 3%.

Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code.

From an individual debtor’s standpoint, a primary goal of filing a bankruptcy case is to obtain relief from burdensome debt. Relief is attained through the bankruptcy discharge, the purpose of which is to provide a “fresh start” to the honest debtor. The bankruptcy discharge varies depending on the type of case a debtor files: chapter 7, 11, 12, or 13.

A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial “fresh start” from burdensome debts. There is a federal bankruptcy court for each judicial district in the country. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the United States trustee.