The goal of bankruptcy proceedings is to obtain a discharge of debts, which means the debtor is no longer personally liable for that debt.
Q: What does a “discharge of debt” mean, exactly?
A: The goal of bankruptcy proceedings is to obtain a discharge of debts, which means the debtor is no longer personally liable for that debt.
Q: So what does “personal liability” mean, then?
A: Having personal liability for a debt means that creditors who obtain a judgment against you can use legal means, such as levies and garnishments, to reach your non-exempt assets and earnings, even if you didn’t pledge those assets as collateral and the debt was unsecured. A bankruptcy discharge means you are no longer personally liable for that debt.
Q: What is meant by “liens” or “in rem liability”?
Even when personal liability is discharged through bankruptcy, most liens–the liability of a piece of property for a debt secured by that piece of property (think a car, boat, or home)–remains unaffected by the bankruptcy discharge, unless a court order modifies or voids them. What this means is that the lien may remain a charge on your asset after you obtain a bankruptcy discharge, though it cannot become a lien on any new assets you require after that discharge.
Q: How about a permanent injunction?
Bankruptcy discharges serve are court injunctions against certain actions surrounding the debts that existed before the debtor filed for bankruptcy. The discharge injunction replaces the automatic stay that immediately goes into place once the bankruptcy case is initiated. Discharge injunctions prevent creditors from beginning or continuing any lawsuit or other action to enforce a discharged debt against the debtor or the debtor’s property. Judgments as to a debt arising before the bankruptcy began are void after the discharge.
Discharges apply to both debts that were liquidated as of the bankruptcy filing as well as any liability arising from events before the filing, as long as the creditor (or would-be creditor) received notice of the bankruptcy.
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: a debtor’s liability for an car crash for which which he was at fault is discharged, even though there has not been a specific trial regarding that accident.
Of course, this entire section only applies to dischargeable debts. Certain classes of debt are not dischargeable during bankruptcy and remain unchanged once the bankruptcy discharge is issued. This means the debtor will remain personally liable for them after the discharge.