What Types Of Debts Are Eliminated In Bankruptcy?

When filing for bankruptcy, understanding which debts can be eliminated is crucial for debtors seeking relief. The types of debts that can be discharged in bankruptcy vary depending on whether one files under Chapter 7 or Chapter 13. However, there are general categories of dischargeable debts, as well as specific types that are typically non-dischargeable across both chapters.

Dischargeable Debts in Bankruptcy

1. Credit Card Debt: This is one of the most common types of debt eliminated in bankruptcy. It includes unsecured credit card charges and other unsecured revolving credit lines.
2. Medical Bills: Another significant category of dischargeable debt is medical debt, which can accumulate quickly due to illness or injury.
3. Personal Loans: Unsecured personal loans, including those from friends, family, or traditional lenders, can generally be discharged in bankruptcy.
4. Utility Bills: Past due utility bills can be eliminated, although service may be interrupted if the bills are not paid.
5. Business Debts: Debts incurred through business operations can be discharged, provided they are not tied to any personal guarantee.
6. Certain Older Tax Liabilities: Some older, unpaid taxes can be discharged under specific conditions, particularly in Chapter 7 bankruptcy.
7. Civil Court Judgments: Many civil judgments can be discharged in bankruptcy, except those arising from fraud, willful or malicious acts, or certain other exceptions.
8. Lease and Contract Obligations: Debts arising from lease agreements or other contracts can be discharged, freeing the debtor from future obligations under these agreements.

Non-Dischargeable Debts

While bankruptcy offers broad relief, some debts are typically not eliminated:

1. Student Loans: Generally, student loans are not dischargeable in bankruptcy unless the debtor can prove “undue hardship,” which is a difficult standard to meet.
2. Child Support and Alimony: Obligations like child support and alimony are prioritized and not dischargeable in bankruptcy proceedings.
3. Certain Tax Debts: Recent tax debts, particularly those within the last three years, and certain other tax-related obligations, are not dischargeable.
4. Debts from Willful and Malicious Acts: If a debt arises from a willful and malicious act that caused injury to another person or property, it cannot be discharged.
5. Fines and Penalties Owed to Government Agencies: Fines, penalties, or forfeitures payable to the government are not dischargeable.
6. Debts Incurred Through Fraud: Debts or credit obtained through false pretenses, fraud, or false financial statements are typically non-dischargeable if the creditor challenges the discharge.
7. Certain Condominium or Cooperative Housing Fees: Fees or assessments owed to a housing cooperative or condominium association are often non-dischargeable.

Chapter-Specific Considerations

• Chapter 7: This chapter allows for the discharge of most unsecured debts, but secured debts are treated differently. If a debtor wishes to retain an asset tied to a secured debt, they must continue to make payments or negotiate a reaffirmation agreement with the creditor.
• Chapter 13: This chapter involves reorganizing debts into a manageable repayment plan. While some debts must be paid in full, others can be partially or fully discharged upon the completion of the payment plan.

Bankruptcy can provide a pathway to financial relief by eliminating various types of debts. However, the specific debts that can be discharged depend on the bankruptcy chapter filed and the individual circumstances of the debtor. Understanding the distinctions between dischargeable and non-dischargeable debts is crucial for anyone considering bankruptcy to ensure they have realistic expectations about the outcomes of their case.

Dischargeable debts