Bankruptcy Discharge

Posted on

A discharge in United States bankruptcy law, when referring to a debtor’s discharge, is a statutory injunction against the commencement or continuation of an action (or the employment of process, or an act) to collect, recover or offset a debt as a personal liability of the debtor. The discharge is one of the primary benefits afforded by relief under the Bankruptcy Code and is essential to the “fresh start” of debtors following bankruptcy that is a central principle under federal bankruptcy law. Discharge is also believed to play an important role in credit markets by encouraging lenders, who may be more sophisticated and have better information than debtors, to monitor debtors and limit risk-taking. A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged.

In 1998, the law regarding student loans and bankruptcy was revised to remove any time-frame for allowable discharges, leaving undue hardship as the only avenue to pursue bankruptcy. At the time, this only applied to federal student loans. This changed in 2005, when lawmakers included private student loan debt in a comprehensive bankruptcy amendment. At this time, it is extremely difficult to discharge student loans in bankruptcy.

Source