When talking about discharging of debts in bankruptcy, we are referring particularly to Chapter 7 bankruptcy. Chapter 13 bankruptcy typically involves restructuring of a debt rather than a debt discharge or forgiveness. A discharge removes debtors from personal liability for debts and prevents a creditor from taking any action against a debtor. Meaning, the debtor will no longer be required to pay his/her debts. For that reason, the main goal behind filing for Chapter 7 bankruptcy by most people is to discharge and/or wipe out their debt. However, while there are quite a number of debts that Chapter 7 can discharge, (with credit card debt being one of the most common of them) there are still some debts that it cannot discharge. Understanding what debts can and can’t be discharged may be an important consideration when thinking of filing for bankruptcy.
Debts That Can’t be Discharged
Though a debtor may not be personally liable for forgiven debts, however, a valid lien against his/her property (whether real estate or personal property) that hasn’t been avoided in the bankruptcy case still applies. These type of debts are referred to as secured debts (since they were secured with an interest on the property). So a secured creditor can enforce the lien so as to recover the property even though the debt may have being discharged.
Another type of debt that generally can’t be discharged in bankruptcy is Federal student loans. There are 19 debt categories that the Bankruptcy Code lists as debts that cannot be discharged. Anything that doesn’t fall within the listed categories can be discharged.
Debts That Can be Discharged
Although not all debts are dis-chargeable in bankruptcy, the majority of an individual’s debts may be discharged in Chapter 7, especially when extraordinary circumstances are absent. Only debts that come before the filling date (Chapter 7) will be discharged. A debtor will be held responsible for any debt he/she incurred after filing for Chapter 7. Below is a broad list of the commonly dis-chargeable debts.
Commonly discharged debts include:
- Credit card charges (whether overdue and/or late fees)
- Medical bills
- Collection agency accounts
- Personal loans from employers, friends, and family, (note that you may also be ending those relationships)
- Utility bills (particularly your past due amounts and not future bills)
- Dishonored checks (except based on fraud. However, this doesn’t mean that there won’t be penalties for bad checks)
- Certain student loans (only in rare circumstances)
- Auto accident claims (exception of those involving drunk driving)
- Deficiency balances after repossession
- Any money owed under lease agreements including past due rents (note that this might not prevent you from getting evicted).
- Personally guaranteed business debts
- Civil court judgments (except based on fraud)
- Several tax penalties as well as unpaid taxes past a particular number of years
- Attorney fees (apart from alimony awards and child support)
- Revolving charge accounts (apart from extended payment charges)
- Social security over-payments (must be absent of fraud)
- Veterans assistance loans (must be absent of fraud).
Note that, any form of misconduct in connection with any or all of the above categories may affect whether the debt can be discharged or not.