Bankruptcy is often the last option for a consumer that is struggling to handle debt. Finances are low, debts soar and creditors continue calling. Chapter 7 or Chapter 13 will be able to eliminate most debts, but not all.
Which Debts are Discharged in Bankruptcy?
Whether you choose Chapter 7 or Chapter 13 bankruptcy, the following debts will be discharged:
- Personal loans
- Lease and contract obligations
- Medical bills
- Credit card debt
- Court fees
- Debts from a previous bankruptcy
Debt from promissory notes, lawsuit judgements against you and even debt from car accidents may be discharged. HOA and condo fees can be discharged, and loans that you have taken out from a retirement plan can also be discharged.
Which Debts Cannot Be Discharged?
A lot of debts cannot be discharged, too. Student loans, for example, are going to remain. The debts that will not be discharged are:
- Penalties or fines for breaking the law
- Child support
- Certain taxes
- Student loans
- Personal injury debts
- Government agency fines or penalties
You must include all of the debts on your bankruptcy petition. If you didn’t include the debt in your petition, it will not be discharged. The creditor does have a right to challenge a discharge. The filer and the creditor can both present their arguments.
For example, if you decided to go out and purchase luxury goods that have a price of over $650, just months before bankruptcy, the creditor can claim that the purchases were fraudulent.
If you made the purchases with the intent of having the debt discharged, the creditor will likely contest the debt being discharged.
“Bankruptcy can also eliminate secured debts like car loans and mortgages. However, you will either need to enter a payment plan to keep the property or relinquish the property. Bankruptcy may also be able to eliminate second mortgages or reduce vehicle loan payments in certain circumstances,” explains Philadelphia bankruptcy attorney David M. Offen.
Courts Can Deny a Discharge
Courts can decide not to discharge debt if you fail to follow rules and procedures. Denying a discharge is done on a case-by-case basis, but it often occurs when the debtor:
- Hides property
- Destroys records
- Doesn’t disclose assets
You cannot also claim bankruptcy multiple times in a short amount of time.
There are times when you may be able to convince the court to discharge a debt due to a legal exception. For example, income tax debt is difficult to discharge, but there are cases where the person can have the debt discharged when certain requirements are met and a certain amount of time has passed.
A lawyer will be able to discuss which bankruptcy option is the best choice for your debt.
Chapter 13 may be a good option which allows you to follow a repayment plan that allows you to pay off debts in full, such as: child support, alimony, tax debts, debts relating to breaking the law and other debts.
Your lawyer will be able to explain which debts you can and cannot expect to be discharged during your bankruptcy.