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Chapter 7 bankruptcy—discharge

A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge.

Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case—generally, 60 to 90 days after the date first set for the meeting of creditors.

The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management.

Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to reaffirm the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt.

In Texas, as in other states, a Chapter 7 bankruptcy discharge releases individual debtors from personal liability for most debts and prohibits creditors from taking collection actions against the debtor for those debts. The discharge is subject to exceptions, and debtors are advised to seek advice from an attorney to understand the full scope of the discharge. Most Chapter 7 cases result in a discharge, provided no objections are raised by interested parties. The discharge typically occurs 60 to 90 days after the creditors' meeting. However, a discharge can be denied for reasons such as inadequate record-keeping, unexplained asset loss, perjury, noncompliance with court orders, fraudulent actions, or failure to complete a financial management course. Even after a discharge, secured creditors may still have rights to repossess property tied to secured debts. Debtors may choose to reaffirm certain debts to retain property, agreeing to continue paying the debt in exchange for the creditor's promise not to repossess the collateral. It's important for debtors to consult with an attorney to navigate the complexities of reaffirmation agreements and the implications for their financial situation post-bankruptcy.

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