Debtors filing for bankruptcy are amazed at just how much debt they can eliminate. Whether you’re filing Chapter 7 or Chapter 13 bankruptcy, the amount of debt you can discharge (i.e. cancel) can help you get a fresh financial start. Let’s take a look at which debts are dischargeable in bankruptcy and which are not:
Most unsecured debts such as credit cards, medical bills, personal loans, and utility bills can be discharged in Chapter 7 bankruptcy. Any money you borrow or credit you use, that is not backed up with an actual piece of property is considered an unsecured debt. Because the lender can’t take the property back, the interest rates are much higher for unsecured debts too.
The biggest exception to this rule is if you obtained an unsecured debt through fraud, criminal acts, or some other malicious act on your part. For example, if you lied on your credit card application to get a loan, you may not be allowed to discharge the debt in bankruptcy.
In the case of Chapter 13 bankruptcy, you can discharge unsecured debt if you can’t afford to repay it through your repayment plan. You can also discharge some income taxes in Chapter 7 or Chapter 13 bankruptcy, but not the most recent. Generally speaking, you may discharge any taxes that are at least 3 years old.
Bankruptcy will allow you to discharge a wide array of debts, but there are some debts you simply can’t get rid of. Here’s a list of a few:
- Child support payments. Any payments (including back payments) you owe for the support of a child cannot be discharged in bankruptcy. However, working with the family court, you may modify the amount you pay if you’re earning less money.
- Alimony payments. In most cases alimony payments cannot be discharged in bankruptcy because similar to child support they are considered “domestic support” payments.
- Some taxes. Generally speaking you can’t discharge in bankruptcy taxes that are less than 3 years old.
- Criminal penalties. You can’t discharge in bankruptcy orders to pay restitution or other criminal penalties.
- Fraudulent debts. If you obtained credit cards, personal loans, or other debt through fraudulent or criminal means, you’re obligation to pay those debts can’t be discharged in bankruptcy.
- Student loans. While it’s not impossible to discharge student loans in bankruptcy, it’s very unlikely. Only debtors who qualify under the Brunner Test are allowed to discharge student loans.
If you want to know if your debts can be discharged in bankruptcy, speak with an experienced attorney.