A bankruptcy is defined as the legal process in which a person or firm declares inability to pay debts. Any available assets are liquidated and the proceeds are distributed to creditors. Upon a court declaration of bankruptcy, a person surrenders assets to a court-appointed trustee, and is relieved from the payment of previous debts. A bankruptcy discharge is an order given by the bankruptcy judge, at the conclusion of all legal steps in processing a bankrupt person’s assets and debts, which forgives those remaining debts which cannot be paid, with certain exceptions. Debts for fraudulent or illegal actions, alimony and child support and taxes are not dischargeable and remain owed.

The fair treatment of creditors and public policy both work to limit the extent of the discharge for debtors. The bankruptcy code was not designed so that debtors can take advantage of creditors for their own profit, and so various provisions of the bankruptcy code limit the debts that are discharged if they were incurred dishonestly or by fraud. This includes debts that were incurred on credit cards where the debtor entered false information on the credit application and also includes major debts for luxury goods that were incurred shortly before filing for bankruptcy. However, a creditor must challenge the discharge of these debts, and the court must notify the debtor and conduct a hearing; otherwise, the debts will be discharged.

There are debts that are discharged and others that are not allowed to be discharged. Most unsecured debts acquired by the debtor in good faith and if they cannot pay them off are allowed to be discharged under a regular Chapter 7 bankruptcy . Debts that are never discharged in a bankruptcy can include:

1. Recent taxes
2. Trust fund taxes
3. Child or family support
4. Criminal fine or restitution
5. Accident claims involving intoxication
6. Debts not scheduled
7. Penalties payable to the government other than tax penalties
8. Student loans
9. Debts listed in prior bankruptcy where debtor was denied a discharge
10. Taxes for years where return unfiled or filed for less than 2 years

Some of the listed debt may be discharged if the debtor can prove hardship to pay them back within a reasonable time frame.
Secured debt that is discharged is a little more difficult as the debtor might want to keep that asset such as a car, or home. The individual debtor can surrender the secured property, pay for it in a lump sum, or sign a Reaffirmation Agreement to keep it. In most cases, only prepetition debts are discharged. In an involuntary Chapter 7 case that is brought by a creditor rather than the debtor, discharged debts also includes debts incurred between when the case was filed and when the actual bankruptcy case commences, if the Chapter 7 bankruptcy is approved by the court.

An automatic stay is put once a bankruptcy process begins, this prohibits the collection of debts by the creditors. If the debtor receives the discharge of the debts, then the injunction succeeds the automatic stay and enjoins any further actions to collect the debts from the debtor. If a creditor violates the injunction and tries to collect the debts, then the courts may issue a civil contempt order. Generally, waivers of certain discharged debts are not enforceable except in specific circumstances. Waivers must be in writing and approved by the court. A reaffirmation agreement, for instance, must satisfy these and other requirements to be enforceable. A debtor may volunteer to pay a debt, but the creditor cannot harass or intimidate the debtor into doing so.

A Chapter 7 discharge is granted to an individual debtor if there have been no challenges, which is usually the case. Creditors have 60 days after the creditors meeting to challenge the discharge of its debt. If there are no challenges and if the debtor did not sign an reaffirmation agreement, then after about 3 months after the creditors meeting, the court sends the debtor the notice of the discharge. If the debtor signed a Reaffirmation Agreement and is not represented by an attorney, then the court requires the debtor to appear before it so that it can ascertain whether the debtor understands the Reaffirmation Agreement and that the debt will continue beyond bankruptcy. The debtor can either accept the agreement or cancel the agreement. Regardless, the discharge is granted at this hearing.
A Chapter 7 discharge relieves the debtor of the liability of most prepetition debts and some post petition debts, such as the claims resulting from the rejection of executory contracts or the avoidance of a transfer.