Which Debts are Discharged If I File For Chapter 7 Bankruptcy?

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Chapter 7 bankruptcy is a powerful tool for individuals grappling with mounting debt. One of the primary advantages of filing for this type of bankruptcy is the possibility of having numerous debts discharged. But which debts can you eliminate, and which remain?

Typical Debts Discharged in Chapter 7 Bankruptcy

The range of dischargeable debts is extensive. Some of the most common include:

  • Credit Card Debts: These are perhaps the most common debts eliminated in a Chapter 7 bankruptcy.
  • Medical Bills: Another common burden for many, medical bills can often be discharged, freeing individuals from overwhelming health-related debts.
  • Payday and Signature Loans: Short-term, high-interest loans can be eliminated, providing relief from what can often be predatory lending practices.
  • Debts Owed to Landlords: This can include debts from broken leases or damage claims post-move-out.
  • Certain Tax Debts: Contrary to popular belief, not all tax debts are immune to bankruptcy. If a tax debt is over three years old, there’s a possibility it can be discharged.

Exceptions: Debts That Aren’t Discharged

Understanding which debts are discharged is beneficial, but it’s equally vital to be aware of the exceptions.

  • Recent Tax Debts: If the tax debt is less than three years old, it remains untouched by bankruptcy proceedings.
  • Back Alimony and Child Support: Obligations towards family maintenance, including alimony and child support, cannot be erased through bankruptcy.
  • Property Settlement Debt: This type of debt is not dischargeable in Chapter 7, although it can be addressed in Chapter 13.
  • Student Loans: Barring exceptional circumstances, student loans generally remain even post-bankruptcy.

Secured Debt: The Intricacies of Discharge

Secured debts, like car loans or home mortgages, come with their own set of rules.

The Decision to Retain or Surrender Property

While the debts themselves can technically be discharged, they are tied to physical assets through liens. Thus, if a debtor wishes to retain their home or vehicle, they must continue making payments. However, if the debtor chooses to surrender the property, the associated debt can be discharged.

Real Estate Debts and Discharge

Should a debtor decide to relinquish a property due to issues like foundational damage or unfavorable location, the associated real estate debt can be discharged. This is particularly beneficial if the house’s sale wouldn’t cover the outstanding loan or associated closing costs.

Conclusion

In conclusion, while Chapter 7 bankruptcy offers extensive debt relief, it’s imperative to understand the nuances of what can and cannot be discharged. By having a clear picture of which debts are discharged, individuals can make informed decisions, optimizing their financial fresh start. If you have any questions, don’t hesitate to contact us. We’re here to help and guide you through every step of the process.

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Author picture

Jeffrey L. Wagoner

President

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