discharge (of debts)

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Discharge (of debts) refers to the process in bankruptcy court, when a debtor is no longer liable for their debts, and the lender is no longer allowed to make attempts to collect the debt. The court will issue a decision to discharge debts. Courts can issue a discharge ruling when the debtor meets the discharge requirements under Chapter 7 or Chapter 11 of federal bankruptcy law, or the ruling is based on a debt canceling.

A canceling of debt happens when the lender agrees that the rest of the debt is forgiven. For example, if the debtor and the lender have signed a “debt cancellation agreement” (DCA), which provides for cancelation of the remaining loan balance in certain conditions (like death, or property being stolen), when they sign the original lending contract, and the cancelation agreement is found by the court as valid, the lender would have to forgive the debt. In this case, the debtor can ask for the court to issue a discharging ruling, to release the future debts. Businesses often have a DCA in a retail installment contract. Some states require the DCA being submitted to certain government agencies to be approved (see this Texas motor vehicle sales finance DCA submission requirement for further details.)

See e.g., Idell v. Goodman 224 Cal.App.3d 262 (1990).

[Last updated in September of 2022 by the Wex Definitions Team