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What is a bankruptcy discharge in California?

On Behalf of | Sep 23, 2022 | Bankruptcy

Filing for bankruptcy can be a complicated process for some California residents. Ultimately, most people filing for bankruptcy are looking for a bankruptcy discharge. This is the court order that frees someone from the obligation to pay back any qualifying debt.

What happens when a debt is discharged?

The debt that is discharged goes away and can no longer be collected by creditors. Creditors will have to write it off as a loss and the debtor is no longer required to pay it back. Debt that usually is eligible for discharge includes:

  • Credit card debt
  • Medical bills
  • Personal loans
  • Lease / contract obligations

Some lawsuit judgments might also fall under this category. For people with extreme debt, getting a bankruptcy discharge to take care of these unsecured debts can seem like a great solution.

What are some downsides to bankruptcy discharges?

The biggest downside is the impact on your credit that comes from filing for bankruptcy in the first place. It can take years to rebuild your credit, which is why it’s the last resort for many people.

You also must prove to the court that it’s necessary to discharge this debt. There are other requirements from the court, such as taking a financial management course before bankruptcy is granted.

Oftentimes, the court will liquidate nonexempt assets in order to pay off as much of the debt as possible before discharging the rest. These include non-primary residential properties, newer vehicles, and any other items of value (instruments, artwork, jewelry, etc.).

What debt can’t be erased?

Regardless of the type of bankruptcy you file, the court will rarely discharge child support or alimony debt, along with other types of debt. Because of all the downsides, it’s very important to make sure you can actually financially recover through bankruptcy discharges before you file.