At the conclusion of a bankruptcy an Order is entered called the discharge. It is the discharge that functionally eliminates the debtor’s personal liability (meaning his legal responsibility for paying) the debt incurred prior to the bankruptcy filing. In many ways the discharge is the wrap up of the whole bankruptcy process, and it makes everything that happens before it final and permanent.
The downside of the discharge is that it also means the debtor is once again outside the safety of the bankruptcy court and back in the real world — although without all the baggage that caused the bankruptcy filing in the first place.
Clients are thrilled when they get their discharge. It is OVER! I am free! I am frequently a bit wistful, because I know that when something else happens (and life is always happening), the debtor may be less comfortable inside the bankruptcy; but the debtor is far safer. Inside of a Bankruptcy the Debtor is protected by the Automatic Stay and the Confirmation Order (if in a reorganization chapter). Those things mean procedural protections and, most importantly, time, to deal with whatever life throws at you.
We have a false feeling of control over our lives. Really what makes debt and bankruptcy both so scary is the sense of being out of control — but we are used to that. We aren’t used to bankruptcy so it feels scarier, when in many cases it is far safer.
We are living in the most uncertain times that any of us have lived through, and we are all going to have to learn new survival skills. I hope that for you bankruptcy won’t be one of them, but if it is, try to be less anxious rather than more.
Confirmation orders are only entered in reorganization chapters (for consumers most normally a Chapter 13), but when they are entered, they constitute a new contract between all parties to the order (which includes the debtor and all of the creditors in the case). This new contract requires, among other things, that the debtor be treated as current. It limits the creditors’ ability to get paid only as provided for in the plan. It limits a creditor’s ability to charge late fees or to apply payments in ways other than as specified in the plan. Now, some of the protections of the Confirmation Order require that the debtor successfully complete the plan and receive a discharge; but it remains a potent form of protection for a debtor in a chapter 13 bankruptcy.
Another thing that makes a Confirmation Order particularly valuable during uncertain times is that it can be modified by Motion and Order. That means that if bad things happen during a multi-year plan of reorganization, the Debtor can ask the Court to modify the Confirmation Order to allow the debtor room to cope with the unexpected. The ability to request a modification means that if something bad happens during a Chapter 13 bankruptcy, the Debtor is almost always going to have time to address it, and if a little time isn’t enough the tools to change payment terms or sometimes even to extend the repayment term.
One of the surprising aspects of the CARES act (one of the principal pandemic assistance statutes) is the ability to extend a chapter 13 repayment plan from 5 years to 7 years. Now, this only applies to cases that were confirmed before March 27, 2020, and the provision will sunset on March 27, 2021. Still, for people experiencing a decrease in income for an extended period of time, this provides a unique tool for curing arrears on secured debt.
The incredible protections of a confirmation order are one of the reasons I am recommending Chapter 13 filings during this time of great uncertainty. It can be difficult to explain, but being in a chapter 13 can be one of the safest places to be during times as scary as the ones we are currently living through.