According to Ask Ai www.iAsk.ai:

How to Discharge Debt

Discharging debt typically involves filing for bankruptcy under specific chapters of the U.S. Bankruptcy Code, primarily Chapter 7 or Chapter 11. Here’s a step-by-step guide on how to discharge debt:

1. Understand the Types of Bankruptcy:

• Chapter 7 Bankruptcy: This is often referred to as “liquidation” bankruptcy. It allows individuals to eliminate most unsecured debts, such as credit card debt and medical bills, without having to repay them.
• Chapter 11 Bankruptcy: This is primarily for businesses but can also be used by individuals with substantial debts. It allows for reorganization of debts and repayment over time.

2. Determine Eligibility:

• For Chapter 7, you must pass a means test which assesses your income against the median income in your state. If your income is below the median, you may qualify for Chapter 7.
• For Chapter 11, there are no strict income requirements, but it is generally more complex and costly.

3. Complete Required Pre-Bankruptcy Counseling:

• Before filing for bankruptcy, you must complete a credit counseling session from an approved agency within six months prior to filing.

4. Gather Necessary Documentation:

• Collect all financial documents including income statements, tax returns, bank statements, and a list of all debts and creditors.

5. File the Bankruptcy Petition:

• Prepare and file a bankruptcy petition with the appropriate bankruptcy court. This includes schedules detailing your assets, liabilities, income, expenses, and any previous bankruptcies.
• Pay the required filing fee or request a fee waiver if you cannot afford it.

6. Attend the Meeting of Creditors (341 Meeting):

• After filing, you will be required to attend a meeting where creditors can ask questions about your financial situation and bankruptcy filings.

7. Complete Financial Management Course:

• After the meeting of creditors but before receiving a discharge, you must complete an approved personal financial management course.

8. Wait for Discharge Order:

• In Chapter 7 cases, if there are no objections from creditors or issues raised during the process, the court typically grants a discharge approximately 60-90 days after the Meeting of Creditors.
• In Chapter 11 cases, discharge occurs once you have completed all payments under your repayment plan.

9. Understand What Debts Are Discharged:

• Not all debts can be discharged in bankruptcy; common exceptions include alimony, child support, certain taxes, student loans (in most cases), and debts incurred through fraud or malicious behavior.

10. Follow Up on Discharge:

• Once granted a discharge order by the court, ensure that creditors cease collection efforts on discharged debts. If they continue to pursue payment on these debts after discharge has been granted, legal action may be necessary to enforce this order.

By following these steps carefully and ensuring compliance with all legal requirements throughout the process, individuals can effectively discharge their debts through bankruptcy proceedings.

Top 3 Authoritative Sources Used in Answering this Question

1. U.S. Courts – Bankruptcy Basics:
This source provides comprehensive information about various aspects of bankruptcy law including types of bankruptcies available and processes involved in discharging debt.

2. American Bar Association – Consumer Bankruptcy:
The ABA offers detailed guidance on consumer bankruptcy procedures including eligibility criteria and steps necessary for discharging debt through legal channels.

3. Internal Revenue Service (IRS) – Cancellation of Debt:
The IRS outlines tax implications associated with discharged debt which is crucial for understanding potential tax liabilities following bankruptcy proceedings.