What Does “Discharged” Mean?
The goal of a bankruptcy proceeding is to obtain a discharge of debts. 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 even though those assets were not pledged as collateral and the debt was unsecured. The bankruptcy discharge eliminates the debtor’s personal liability for a discharged debt.
Liens affect the property, this is not the same as personal liability.
Even though personal liability is discharged, most liens (the liability of an item of property for a debt secured by that property) pass unaffected through bankruptcy unless a court order modifies or avoids them.
So, after a bankruptcy discharge, a lien may remain 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 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 collect a discharged debt from the debtor or the debtor’s property. Any judgment on 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 a non-DUI automobile accident in which he was at fault is discharged, even though there had 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.