Legal Definitions - discharge (of debts)

Definition: Discharge (of debts) is a legal process in bankruptcy court where a debtor is no longer responsible for paying their debts, and the lender is not allowed to try to collect the debt anymore. The court will issue a decision to discharge debts when the debtor meets the requirements under federal bankruptcy law or when the lender agrees to cancel the debt.

Example: If someone files for bankruptcy and meets the requirements under Chapter 7 or Chapter 11 of federal bankruptcy law, the court may issue a discharge ruling, which means the debtor is no longer responsible for paying their debts. Another example is when a lender agrees to cancel the remaining debt. For instance, if a debtor and a lender sign a "debt cancellation agreement" (DCA) that forgives the remaining loan balance under certain conditions, such as death or property theft, the lender would have to forgive the debt. In this case, the debtor can ask the court to issue a discharging ruling to release them from future debts.

The example illustrates how discharge of debts works in two different scenarios. In the first example, the debtor meets the requirements under federal bankruptcy law, and the court issues a discharge ruling. In the second example, the lender agrees to cancel the remaining debt, and the debtor can ask the court to issue a discharging ruling to release them from future debts.