Debts Are Not Erased Immediately
A key component of all bankruptcies is the discharge — or forgiveness — of debt. Once the creditors receive their court-approved payments, all remaining debt is erased from the debtor's record.
How long does a debtor have to wait before his debts are discharged? That depends on the type of bankruptcy filed. The quickest turnaround is a Chapter 7 case. Once the bankruptcy trustee sells off all of the debtor's nonexempt assets, a distribution plan is presented to the creditors. The creditors then have 60 days to file an objection to the terms of the distribution [source: FindLaw]. Once that window expires, all remaining debt is discharged and the debtor is free and clear – about four months in total from the time the petition is filed.
In both Chapter 11 and Chapter 13 cases, the timeline for discharging debt is a lot longer. In those bankruptcies, the individual or business is required to adhere to a strict payment plan over the course of three to five years. Any remaining debts will not be discharged until that plan is completed to the satisfaction of the bankruptcy court.
In addition, individual filers of Chapter 7 and Chapter 13 bankruptcies are required to complete an instructional course in financial management or credit counseling [source: FindLaw]. Failure to take the course could stretch the discharge timeline even further or result in dismissal of the case.