When you file for Chapter 7 or Chapter 13 bankruptcy, you might be looking forward to getting rid of your debts. While this is the major perk – and might even be the driving force behind your reason for filing for bankruptcy – it can also cause worry and uneasiness as you try to determine what debts will be eliminated, and more importantly – which debts may remain after the bankruptcy.
What Debts Are Forgiven?
When you file for bankruptcy, typically all of your unsecured debts are discharged. Some common types of unsecured debts that can be forgiven during bankruptcy include:
- Credit Card Debt: Credit card debt is one of the most common types of unsecured debt that can be discharged in bankruptcy.
- Medical Bills: Unpaid medical bills can often be discharged in bankruptcy.
- Personal Loans: Unsecured personal loans, including payday loans and installment loans, may be discharged.
- Utility Bills: Unpaid utility bills, such as electric or energy bills, may be discharged in bankruptcy.
- Past-due Rent: If you have unpaid rent from a previous lease, it may be discharged in bankruptcy.
- Collection Agency Accounts: Debts that have been sold to collection agencies, such as old utility bills, medical debts, or credit card debts, may be discharged.
- Court Judgments: Some court judgments against you that are not related to child support, alimony, or certain other non-dischargeable debts may be discharged in bankruptcy. This does however become more complicated if you own land and have a judgment against you.
What Debts Are Not Forgiven?
Certain other debts will remain after bankruptcy. These are detailed in 11 U.S.C. 523. Some of the most common types of debt that are not discharged are student loans, certain unpaid taxes or current tax bills, ongoing child or spousal support, public benefit overpayments, and the ‘catch all’ category of debts obtained fraudulently.
There are also certain court fines and probation fees that must still be paid even during or after bankruptcy proceedings.
Secured debts tied to an asset (think home mortgages or cars) are further complicated because the debt is tied to both the bankruptcy filer as a person and the asset that is securing the debt. For instance, a bankruptcy will discharge your personal obligation on a mortgage debt, but the debt will remain against the home. So to keep the home, you would still pay the mortgage payment.
Another debt that is not typically discharged is 401(k) loan repayments. These are not considered to be regular debts. These are unusual since you are borrowing from yourself, so you are both the borrower and the creditor. These payments still need to be repaid even after the bankruptcy is complete.
How Debts Are Handled in Chapter 7 vs Chapter 13 Bankruptcy
When determining which debts will be discharged after bankruptcy and which will not be, it’s essential to understand how these can differ depending on if you file for Chapter 7 or Chapter 13 bankruptcy.
In Chapter 7 bankruptcy, also known as liquidation bankruptcy, most of the debts are discharged during the proceedings. However, any that do remain must be handled by the bankruptcy Debtor (the person filing the bankruptcy). You need to work with the credit agencies on your own after the bankruptcy proceedings are over.
The types of debt discharged in Chapter 13 are different than in Chapter 7. In Chapter 13, debtors repay their debts through a repayment plan. For example, traffic tickets can be eliminated in Chapter 13, but not Chapter 7. You can also get your license reinstated if it’s suspended solely for traffic violations in Chapter 13 and not Chapter 7.
Because you repay debts through the payment plan in Chapter 13, other debts may be eliminated, including:
- Recent taxes
- Past due child support obligations
- Mortgage arrears
- Property tax arrearages
- Certain secured debts (including car payments)
Bankruptcy has a rule for ALL debts. To determine which of your debts will be discharged and which will not, it’s important to have a bankruptcy attorney review your debts and help you determine what will be eliminated.
Let Us Help You
If you are trying to determine which of your debts will be discharged through bankruptcy, let our lawyers at The Law Offices of Alexzander C.J. Adams, P.C. help. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.