Overview
A bankruptcy discharge releases a borrower from personal liability for specified debts and stops most collection actions. For many people, a discharge is the central benefit of bankruptcy: it eliminates obligations that otherwise would persist for years. Which debts are discharged, how quickly that happens, and what protections you keep depend mainly on whether you file Chapter 7 or Chapter 13 and on a handful of legal exceptions.
This article explains the discharge options borrowers typically face, describes common exceptions (taxes, student loans, domestic support obligations), and offers practical strategies I’ve used as a financial advisor to help clients decide their best path. For an authoritative primer on the basic process, see the U.S. Courts’ Bankruptcy Basics (U.S. Courts).
How bankruptcy discharges generally work
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Chapter 7: Often called “liquidation,” Chapter 7 can discharge many unsecured debts (credit cards, medical bills, personal loans) after a relatively short case — typically a few months from filing to discharge in uncomplicated cases. The trustee may sell nonexempt property to pay creditors, but many filers keep most property because of exemptions. (U.S. Courts)
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Chapter 13: This is a repayment plan lasting three to five years. You keep property while paying creditors under a court-approved plan; at the plan’s completion, remaining eligible unsecured debts are discharged. Chapter 13 is often chosen to stop foreclosures, catch up on mortgage arrears, or protect co-signed obligations.
Note: The Bankruptcy Code and court rules govern both chapters. Amounts that qualify for Chapter 13 are subject to statutory debt limits that are adjusted periodically — check current thresholds on the U.S. Courts website before assuming eligibility.
Chapter 7 discharge — who it helps and what it removes
Purpose: Provide a quick fresh start by discharging certain unsecured obligations.
Who typically qualifies: Individuals whose income, after the statutory means test, shows they cannot reasonably repay unsecured creditors. The means test compares your income to your state median and adjusts for household size and allowable expenses. If your income is below the median or you meet other statutory criteria, Chapter 7 may be available. (U.S. Courts)
Commonly discharged debts in Chapter 7:
- Credit card balances
- Medical bills
- Certain personal loans and judgments
- Some types of contract-based consumer debt
What is usually not discharged in Chapter 7:
- Recent income taxes and certain older unpaid taxes that do not meet IRS requirements for discharge (see IRS guidance on bankruptcy and taxes).
- Most student loans, unless you obtain a rare undue-hardship determination in an adversary proceeding (see below).
- Domestic support obligations (child support, spousal support/alimony)
- Debts from fraud, DUI-related injury, or willful and malicious injury (when nondischargeable under 11 U.S.C. § 523)
Practical point from my practice: For clients with little nonexempt property and mostly unsecured bills, Chapter 7 can be the fastest route to a discharge. However, if you have a mortgage arrearage or car loan you need to keep current, Chapter 13 may be a better fit to avoid repossession or foreclosure.
Chapter 13 discharge — reorganization and long-term relief
Purpose: Allow a borrower with regular income to keep property and repay creditors on a court-approved schedule.
How it works: You propose a plan to pay creditors over three to five years. The plan must meet statutory requirements — including paying priority claims (taxes, domestic support) in full or as required — and may require paying unsecured creditors a portion of their claims depending on disposable income and nonexempt assets. After completing the plan, the court typically grants a discharge of qualifying unsecured debts.
Common uses of Chapter 13:
- Stop a pending foreclosure and catch up mortgage arrears over time
- Reduce or stretch secured debt payments to avoid repossession
- Strip junior liens in certain circumstances
Non-dischargeable debts in Chapter 13 are generally the same categories listed above. Note that completing a Chapter 13 plan and getting a discharge protects debts differently than a Chapter 7 discharge — e.g., you may pay some portion of unsecured debt rather than eliminate it entirely.
Insider tip: For clients with stable income but temporary cash-flow problems, Chapter 13 can preserve assets and give breathing room while forcing a systematic repayment that reduces creditor pressure.
Special debt categories and exceptions
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Student loans: Federal and private student loans are presumptively nondischargeable except when a debtor proves “undue hardship” in an adversary proceeding. The most common legal test is the Brunner test (many circuits), which requires demonstrating inability to maintain a minimal standard of living now and in the future, among other factors. Success is rare but not impossible — consult specialized counsel. See our deeper discussion: Bankruptcy Discharge vs Student Loan Discharge: Key Differences.
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Tax debts: Some older income tax debts may be dischargeable if they meet several IRS and Bankruptcy Code tests (age of return, type of tax, assessment date, and trustee or IRS audits). Recent tax liabilities, payroll tax liabilities, and tax penalties are often nondischargeable. See the IRS guidance on bankruptcy and taxes and our article When Bankruptcy Can Stop IRS Collection Actions.
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Secured debts and repossession: Discharge eliminates personal liability but does not remove a valid lien. That means a secured creditor (mortgage, car loan) can usually repossess or foreclose unless you reaffirm the debt, redeem the property, or keep current payments under a Chapter 13 plan.
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Cosigners: A discharge typically releases only the debtor — cosigners may remain liable unless specific steps are taken. Consider reaffirmation agreements or reaffirmation alternatives carefully.
Practical timeline and process
- Filing: You file a petition with the bankruptcy court and submit schedules listing assets, debts, income, and expenses. An automatic stay takes effect immediately to stop most collection actions.
- 341 Meeting: About a month after filing, the trustee holds the meeting of creditors (the 341 meeting). Most individual consumer cases are resolved here without creditor appearances.
- Liquidation and asset handling (Chapter 7) or plan confirmation and payments (Chapter 13): Trustees or courts proceed according to chapter-specific rules.
- Discharge: Chapter 7 discharges usually issue a few months after filing; Chapter 13 discharges occur after successful completion of the repayment plan (commonly 3–5 years). Timing can vary with case complexity.
Eligibility and the means test (brief)
The means test screens Chapter 7 eligibility by comparing your current monthly income against your state median for a household of your size, then subtracting allowed expenses to determine disposable income. If your disposable income is below formulaic thresholds, you can generally proceed in Chapter 7. Because the test calculations and median amounts change, consult current resources or an attorney before filing (U.S. Courts).
Strategy checklist — steps I use with clients
- Inventory debts and identify secured vs unsecured liabilities.
- Check whether priority debts (taxes, child support) will survive a discharge.
- Run a preliminary means test and assess state exemptions to estimate what property — if any — would be at risk.
- Evaluate alternatives (debt settlement, payment plans, mortgage workout) — see When a Partial-Payment Installment Agreement Is Better Than Bankruptcy for tax-specific comparisons.
- If bankruptcy looks necessary, consult a bankruptcy attorney and a credit counselor (required pre‑filing credit counseling and post‑filing debtor education certificates are mandatory in consumer cases).
- Plan for life after discharge: rebuild emergency savings, establish a budget, and obtain secured credit to rebuild your credit profile methodically.
Common mistakes and misconceptions
- “All my debts will be wiped out” — Not true. Many debts are nondischargeable.
- “I’ll lose everything I own” — Exemptions protect many types of property; total loss is uncommon for typical consumer filers.
- “I can discharge student loans just by filing” — Student loans require separate litigation in most cases.
- Failing to consult an attorney or to complete required pre- and post-filing counseling can delay or jeopardize discharge.
Interlinked resources on FinHelp.io
- For details on which loans can be eliminated after bankruptcy, see our guide: Loan Discharge After Bankruptcy: What Types of Debt Can Be Eliminated?
- For student loan specifics and practical myths, see: Bankruptcy Discharge vs Student Loan Discharge: Key Differences
- If you’re weighing bankruptcy versus other options for tax liabilities, read: When to Use Bankruptcy as a Tax Debt Strategy
Frequently asked questions
Q: Will a bankruptcy discharge remove a lien on my house?
A: No. Discharge releases you from personal liability, but a mortgage lien survives unless the lien is separately avoided or paid off. Chapter 13 can restructure arrears to stop foreclosure.
Q: Can I rebuild credit after discharge?
A: Yes. Many clients begin rebuilding within months by maintaining on-time payments for any ongoing obligations and using secured credit cards or small installment loans responsibly.
Q: What if a creditor sues me after a discharge?
A: A valid discharge prohibits ordinary lawsuits to collect discharged debt. If a creditor attempts to collect a discharged debt, report it to the court and consult your attorney about contempt remedies.
Sources and further reading
- U.S. Courts — Bankruptcy Basics: https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics
- Consumer Financial Protection Bureau — Bankruptcy information for consumers: https://www.consumerfinance.gov/
- Internal Revenue Service — Bankruptcy guidance for tax debts: https://www.irs.gov/
Professional disclaimer
This article explains general principles and is not legal advice. Bankruptcy outcomes depend on detailed facts and local law. Consult a qualified bankruptcy attorney and, when tax issues are involved, a tax advisor before making decisions. In my practice I regularly coordinate with attorneys to help clients align debt relief choices with long-term financial goals.
