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Bankruptcy Basics: Granting of Discharge

The final step in a successfully completed chapter 13 case is the discharge. As in chapter 7, the debtor must complete an educational course on personal finances before the discharge will be granted. A certification that the debtor has taken the course must be filed before the last chapter 13 payment required under the plan is made. Bankruptcy Rule 1007(c).

Consumer Bankruptcy Law and Practice: D.1.1 Introduction

This Appendix provides guidance in completing the Official Bankruptcy Forms relevant to consumer bankruptcies, in effect as of July 2023. Practitioners should also check whether their local bankruptcy courts have altered the Official Forms.

Consumer Bankruptcy Law and Practice: How to Use the Completed Forms

Reprinted below are the initial forms required to institute a bankruptcy case, including all form changes through July 2023. The forms have been completed for a sample chapter 7 bankruptcy. The completed forms are based upon the fact pattern described below. The completed forms are annotated to offer additional information.

Consumer Bankruptcy Law and Practice: Schedule C

Schedule C is a list of the debtor’s exemptions. All possible good faith exemptions should be listed, because if no party in interest files a timely objection, the exemptions will be allowed as listed. See § 10.3.4, supra. The goal, if possible, is to list all of the debtor’s property as exempt.

Consumer Bankruptcy Law and Practice: 2015 Advisory Committee Note on Form 106

The schedules to be used in cases of individual debtors are revised as part of the Forms Modernization Project, making them easier to read and, as a result, likely to generate more complete and accurate responses. The goals of the Forms Modernization Project include improving the interface between technology and the forms so as to increase efficiency and reduce the need to produce the same information in multiple formats. Therefore, many of the open-ended questions and multiple-part instructions have been replaced with more specific questions.

Consumer Bankruptcy Law and Practice: How to Use the Completed Forms

Reprinted below are the initial forms required to institute a chapter 13 bankruptcy case, including all form changes through July 2025, completed for a sample bankruptcy. The completed forms are based upon the fact pattern described below. The completed forms are annotated to offer additional information as to how to complete the forms.

Bankruptcy Basics: Discharge of Most Debts.

The primary goal of most consumer bankruptcies is to provide the debtor with relief from creditor collection actions and an opportunity for a fresh start. This goal is accomplished through a discharge of most, if not all, of the debtor’s debts. The discharge entered in a bankruptcy case under section 524 serves as an injunction barring collection of all discharged debts.

Bankruptcy Basics: Automatic Stay.

Section 362 provides that most creditor actions (including repossessions, garnishments, foreclosures, utility shut-offs, and evictions) against the debtor and property of the debtor must stop immediately upon the filing of the bankruptcy petition. The protection of this automatic stay generally extends for the entire period the bankruptcy case is pending. The automatic stay is replaced by the discharge injunction as to dischargeable debts when the case is closed, providing permanent protection to the debtor.

Bankruptcy Basics: Right to Cure Defaults.

Despite certain protections afforded secured creditors under the Code, a chapter 13 debtor is given the opportunity to cure prepetition defaults on secured and unsecured debts under section 1322(b)(5), even if such a right does not exist under state law. A default may be cured even if the creditor has given notice of acceleration and initiated the foreclosure process before the chapter 13 case is filed, as long as the foreclosure process has not yet been completed under state law. 11 U.S.C. § 1322(c).

Bankruptcy Basics: Modification of Certain Secured Debts.

With some limitations, secured claims may be modified in a chapter 13 case under sections 1322 and 1325. The modification may permit the debtor to pay less than the full amount claimed to be owed by the creditor on the secured claim (based on the value of the collateral), and to modify the contract interest rate and timing of payments.

Bankruptcy Basics: Protection of Exempt Property from Judgment Creditors.

In keeping with the “fresh start” purpose of bankruptcy relief, debtors are permitted to claim certain property as exempt in the bankruptcy process and are allowed to retain this property after bankruptcy free from creditors’ claims. In addition, a chapter 7 or chapter 13 bankruptcy may protect the debtor’s exempt property from collection actions of a judgment creditor by providing for the avoidance of judgment liens under section 522(f), to the extent such liens impair the debtor’s exemptions.

Bankruptcy Basics: Litigation in Bankruptcy Court.

Bankruptcy court may be an appropriate forum for a debtor to assert consumer defenses and claims as part of the claims allowance process, most often in chapter 13 cases. Such claims and defenses may be brought in the form of an “adversary proceeding” in response to a creditor’s proof of claim, and may be based on federal consumer protection statutes or state lending laws. Proceedings of this kind normally fall within the bankruptcy court’s jurisdiction under 28 U.S.C. § 1334(b), and may be treated as a “core proceeding” under 28 U.S.C. § 157(b).

Bankruptcy Basics: Nondischargeability of Some Debts.

While the general discharge provides a valuable benefit for most consumers, there are certain debts that may not be discharged in a bankruptcy case, such as most student loans, alimony and child support, debts obtained by fraud (if the fraud is proven), restitution obligations and criminal fines, and debts incurred after the bankruptcy case is filed. Exceptions to the general discharge are provided in sections 523(a) and 1328(a).

Bankruptcy Basics: Possible Loss of Property.

The debtor may have equity in certain property beyond the allowed exemption amount and therefore filing a chapter 7 case would result in liquidation of the property. A chapter 13 case may not be feasible for a debtor in this situation because unsecured creditors generally may not be treated worse in chapter 13 than in chapter 7 and, therefore, the debtor may be compelled to make plan payments which are simply unaffordable. 11 U.S.C. § 1325(a)(4). Even in this situation a debtor may elect to file bankruptcy so as to gain the protection of the court while attempting to sell property.

Bankruptcy Basics: Inability to Provide for Secured Obligations.

A chapter 7 bankruptcy case may not assist a debtor in retaining property that serves as security for certain debts, such as home mortgages or car loans. Even though the debtor’s underlying personal obligation on the secured debt will be discharged, security interests on property generally pass through a bankruptcy unaffected if not dealt with in the bankruptcy.

Bankruptcy Basics: Barriers to Recovering Repossessed Vehicles.

If a vehicle has already been repossessed but not yet disposed of by sale or otherwise, the Bankruptcy Code provides a means for the debtor to get it back. However, doing so will usually require filing an adversary proceeding, a mini-lawsuit within the bankruptcy case. The creditor will also likely demand assurances that the vehicle is insured and that the debtor is immediately able to make some form of payment as a condition for returning the car.

Bankruptcy Basics: Impact on Credit Rating.

Under the Fair Credit Reporting Act, information about a bankruptcy filing can be reported on a consumer’s credit report for a period of ten years after the case is filed, rather than the normal seven years allowed for other credit information. 15 U.S.C. § 1681c(a)(1). Still, many consumers are able to obtain credit after filing bankruptcy, though it may pose a problem in getting approved for a conventional home mortgage.

Bankruptcy Basics: Moral Obligations.

Most people want to pay their debts and make every effort to do so if payment is possible. Some debtors also have a strong feeling of moral obligation to pay their bills or may be concerned about the stigma associated with bankruptcy. These debtors may be opposed to any suggestion that they should file bankruptcy. Debtors may have been advised by a credit counselor or collection agent that bankruptcy should be avoided at all costs. By consulting with an attorney, debtors can at least obtain objective information about their legal rights.

Bankruptcy Basics: Possible Discrimination.

Debtors may also be concerned that they may be discriminated against for having filed bankruptcy. However, in most cases, section 525(a) provides that “governmental units” are not permitted to discriminate on this basis. In addition private employers may not terminate employment, or discriminate with respect to employment (though this may not apply to hiring decisions), based upon a bankruptcy filing or discharged debts. 11 U.S.C. § 525(b).

Bankruptcy Basics: Concern About Future Debt.

For certain debtors it may be advisable to wait before filing bankruptcy. If the debtor is currently “judgment proof,” there may be little advantage to filing at a time when creditor action will not result in the loss of the debtor’s property or income. Moreover, if the problems causing the debtor’s financial situation have not been resolved, or if a bankruptcy is filed at a time when the debtor does not have adequate automobile or health insurance, the debtor may be worse off if substantial obligations are incurred after filing.

Bankruptcy Basics: Workout Options

A workout agreement enables the homeowner to address either a temporary financial hardship or a long-term or permanent reduction in income. While there are a variety of workout options (also known as loss mitigation options), three common examples are a repayment plan, a forbearance plan, and loan modification.

Consumer Bankruptcy Law and Practice: 2022-04 Staff Notation

The CARES Act changes Official Forms 122A-1, 122B, and 122C-1 described in the 2020-04 Committee Note lapsed on March 27, 2022. The three forms have reverted to their pre-CARES Act versions (December 2019 in the case of 122A-1, October 2019 as amended in December 2021 in the case of 122B, and October 2019 in the case of 122C-1). In addition, the dollar amounts listed in lines 29 and 40 of 122A-2, and line 29 of 122C-2 are adjusted effective April 1, 2022, as part of the tri-annual dollar adjustments required by 11 U.S.C. § 104.

Consumer Bankruptcy Law and Practice: 2021-12 Committee Note

Official Form 122B is amended in response to the enactment of the Small Business Reorganization Act of 2019, Pub. L. No. 116-54, 133 Stat. 1079. That law gives a small business debtor the option of electing to be a debtor under subchapter V of chapter 11. As amended, the initial instruction in the form includes an exception for subchapter V cases. Because Code § 1129(a)(15) is inapplicable to such cases, there is no need for an individual debtor in a subchapter V case to file a statement of current monthly income.