Will Filing for Bankruptcy Eliminate All of My Debt?

 

Filing for bankruptcy can provide significant relief from debt, but it does not eliminate all types of debt. The types of debts that can be discharged depend on the kind of bankruptcy filed (Chapter 7 or Chapter 13) and specific legal provisions. Here’s a detailed breakdown of what debts are typically eliminated and what debts remain after bankruptcy.

Debts Commonly Discharged in Bankruptcy

1. Unsecured Debts:
   • Credit Card Debt: This is one of the most common types of debt discharged in bankruptcy. All outstanding balances on credit cards are typically eliminated.
   • Medical Bills: Medical expenses are also generally discharged, providing relief from overwhelming healthcare costs.
   • Personal Loans: Unsecured personal loans, including payday loans and loans from friends and family, can be discharged.
   • Utility Bills: Past-due utility bills can be included in the discharge, helping you avoid disconnection.
2. Certain Secured Debts:
   • Mortgage and Car Loans: While the debt itself can be discharged, if you wish to keep the property securing the debt, you must continue making payments. Otherwise, you can surrender the property to the creditor, and any remaining debt can be discharged.
3. Lease Obligations:
   • Lease Agreements: Obligations under residential leases and some car leases can be discharged if you decide to terminate the lease and return the property.
4. Court Judgments:
   • Civil Court Judgments: Most judgments resulting from lawsuits for breaches of contract, negligence, or other civil wrongs are dischargeable.
5. Overdue Rent:
   • Unpaid Rent: Debts for unpaid rent owed prior to filing can be discharged, but you must vacate the property if you’re no longer paying rent.
6. Business Debts:
   • Personal Liability: If you are personally liable for business debts, they can generally be discharged, offering a fresh start for your financial and business life.
7. Old Tax Debts:
   • Income Taxes: Certain older tax debts may be discharged if they meet specific criteria, such as being more than three years old and having been filed on time.

Debts Typically Not Discharged in Bankruptcy

1. Secured Debts:
   • Mortgage and Auto Loans: While the debt may be discharged, the lien on the property remains. If you default on future payments, the lender can still repossess or foreclose on the property.
2. Student Loans:
   • Federal and Private Student Loans: These are generally not discharged unless you can prove undue hardship in a separate legal proceeding, which is difficult to achieve.
3. Recent Tax Debts:
   • Income Taxes: Recent income tax debts (less than three years old) are usually not dischargeable.
   • Payroll Taxes: Debts related to payroll taxes or other employment taxes are not dischargeable.
4. Child Support and Alimony:
   • Domestic Support Obligations: Debts related to child support, alimony, and other domestic support obligations are non-dischargeable and must continue to be paid.
5. Court Fines and Penalties:
   • Criminal Fines: Any fines or penalties arising from criminal actions or traffic violations are not dischargeable.
   • Restitution: Payments ordered as restitution in a criminal case are also not dischargeable.
6. Debts for Personal Injury Caused by DUI:
   • Damages: Debts resulting from personal injury or wrongful death caused by driving under the influence of alcohol or drugs cannot be discharged.
7. Debts Not Listed in the Bankruptcy Filing:
   • Unscheduled Debts: Any debts not included in your bankruptcy schedules may not be discharged, so it is crucial to list all your debts when filing.
8. Certain Debts from Divorce Settlements:
   • Property Settlements: Debts related to property settlements in a divorce decree may not be dischargeable.

While bankruptcy can provide extensive relief by discharging many types of debts, it does not eliminate all financial obligations. Understanding which debts can be discharged and which cannot is essential to managing your financial recovery effectively. Consulting with a qualified bankruptcy attorney can help you navigate these complexities and ensure you receive the maximum benefit from filing for bankruptcy.

 

Chapter 7 Bankruptcy