Discharge bankruptcy is when the court releases a debtor from liability for specific unsecured debts, meaning the debtor no longer is legally required to pay those debts. Discharge bankruptcy is the ultimate goal for any consumer that files for bankruptcy, but it is a difficult process and there are consequences to it.
Court-ordered discharge means the debt is no longer enforceable against the debtor. The judge has looked at your assets and liabilities and determined that you can’t meet your financial obligations. It means creditors, bill collectors an anyone else who thinks they have a right to money they are owed, are out of luck. They can’t pursue you through phone calls, letters or stopping you in a parking lot and demanding payment.
Discharge bankruptcy does not necessarily mean your case is over. The court may order the sale of your non-exempt assets to provide money to creditors. If you don’t cooperate with the bankruptcy trustee in liquidating those assets, or you committed fraud in obtaining the discharge, the trustee may ask the court to revoke your discharge.
If your debt is forgiven or discharged for less than the full amount you owe, you must claim the unpaid amount on your taxes. When a debt is discharged, the debtor will usually receive a Form 1099-C that shows the amount of debt forgiven. The debtor must then report this as miscellaneous income on their tax return the following year.
Debtor Education Required Class
Before you can have your debts discharged, you must go through a long and sometimes tedious process that includes the second stop for financial education.
The first stop is called pre-filing credit counseling, which as the name suggests, must take place before you file for bankruptcy.
The second stop in the education process is called pre-discharge bankruptcy education, or better known as “Debtor Education.”
You must successfully complete the course to have your debts discharged by the court.
Requirements for Pre-Discharge Bankruptcy Education
The material presented in pre-discharge bankruptcy education classes is focused on teaching the consumer how to create a budget (and live with it!), plus rebuilding credit after bankruptcy so that it becomes a useful part of your financial future.
It includes a mandatory topic called “Coping with unexpected financial crisis.” The material must include how to identify alternatives to borrowing when faced with an unanticipated crisis and how to get advice from public and private agencies on dealing with a financial crisis.
Some of the other subjects covered in the classes include:
- Setting short and long-term financial goals
- Calculating the difference between gross and net monthly income
- Identifying fixed and variable monthly expenses
- Keeping accurate financial records
- Distinguishing between wants and needs
- Comparison shopping
- Wise use of credit
- Saving for emergency situations
- Checking credit scores.
The course is taught in person, online or can be done over the phone. It must last at least two hours and be administered by an agency approved by the Office of the U.S. Trustee. The teachers should provide learning material before the class begins, provide instruction on how to make use of those materials and offer tests to measure your comprehension of the material.
If you fail the tests, you must speak directly with an instructor from the company that administered the program to discuss the problems you had with the material.
Cost typically ranges from $25 to $50, but most agencies have fee waivers if you can’t afford it.
When you complete the course, you will receive a certificate verifying that you took the course. In order to have your debts discharged, you must file that certificate of completion with the court. It can’t be faxed or emailed to the court. It must be filed with all other papers or your bankruptcy will not be discharged.
Frequently Asked Questions about Debtor Education
What is “debtor education”?
Debtor education is one of several names associated with the mandatory credit counseling required for a consumer to have his bankruptcy discharged. Teachers give a minimum of two hours of instruction on how to manage money, repair credit and plan successful financial strategies after bankruptcy.
I already took a course credit counseling before I filed for bankruptcy. Why do I have to take it again?
The two counseling sessions cover different subjects. The one you took before filing – called the pre-discharge counseling – is designed to explore options other than bankruptcy for solving your problem. The post-filing, or debtor education counseling session is designed to teach you how to stabilize your financial situation after bankruptcy.
Can I just take both at the same time?
No. The two can’t be taken simultaneously. Pre-discharge credit counseling must take place 180 days before you file. Pre-discharge counseling occurs must be completed within 60 days after your first meeting with creditors for Chapter 7 bankruptcy. For Chapter 13, you must complete the course before making your final payment.
Can I take the debtor education course online?
Yes. They are available online, in person or over the phone. Contact a credit counseling service approved by the U.S. Trustees to schedule your counseling session. Classes run a minimum of two hours.
How much does it cost for Pre-Discharge Bankruptcy?
The fees for pre-discharge bankruptcy, or “debtor education,” vary, but should cost around $50. If you have a problem affording that, there are provisions for having the fees waived.
What is bankruptcy discharge?
That is when the court orders that the consumer is no longer legally required to pay his debts. The court must grant the discharge and it is permanent, meaning creditors can’t take any action against the debtor to collect.
How long does it take to have debts discharged in bankruptcy?
Chapter 7 bankruptcy cases normally are decided in 3-to-4 months. Chapter 13 bankruptcy can go as long as five years before bankruptcy is discharged.
What is a bankruptcy trustee?
A trustee is an impartial party appointed to liquidate the debtor’s non-exempt assets. The trustee sells the assets and distributes the money to creditors. The trustee also can attempt to recover property that he believes was fraudulently disposed of by the debtor.
What happens to my credit score if I get bankruptcy discharged?
It suffers. Your credit score likely will drop 100 points or more following bankruptcy discharge. If it’s Chapter 7 bankruptcy, the information will stay on your credit report for 10 years. If it’s Chapter 13, it will remain there for seven years.