Compliance Question of the Week

What is a discharge and when does it occur in the different bankruptcy filings?

A discharge is granted by the bankruptcy court upon completion of the case. The discharge extinguishes the debtor’s obligations to the creditors, so the debtor no longer has any legal responsibility for the debt and creditors are prohibited from trying to collect on the debts. In a Chapter 7 bankruptcy, the discharge generally occurs within four-to-six months of the bankruptcy filing. In a Chapter 13 bankruptcy, the discharge occurs at the end of the scheduled payment plan, which is usually between three and five years.

The discharge also voids any judgment the credit union may have obtained against the debtor and prohibits any attempts to contact the member, whether by phone, in person or by mail, in order collect the discharged debt. It also bars the use of repossession techniques or the use of court proceedings to obtain payment on the discharged debt.

However, the discharge usually will not affect the validity of a security lien in collateral. If the credit union has a valid lien, upon a default in the payment terms by the member after the discharge, the credit union is entitled to repossess the collateral. In this case, the member will not be responsible for any deficiency balance after the sale of the collateral.

Related Links

Chapter 13 Discharge
Chapter 7 Discharge
Discharge in Bankruptcy

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance.