A bankruptcy is designed to help you get out from under your debts. In a Chapter 7 bankruptcy, the trustee cancels many of the debts. You may have to liquidate some property to repay your creditors, which is why a Chapter 7 is often referred to as a liquidation bankruptcy. In a Chapter 13 bankruptcy, your debts are “reorganized.” You pay debts in a plan over three to five years. Which bankruptcy is right for your situation depends on a number of factors, such as the amount of debt you have and your income.
Cancelled or forgiven debts are usually referred to as discharged. Credit card debt, medical bills and personal loans are examples of the kind of debt which can be discharged under a Chapter 7 bankruptcy. What you need to know is that some debt cannot be discharged, whether you file a Chapter 7 or Chapter 13 bankruptcy.
Debts that carry over
After your bankruptcy case is over, you will continue to owe on these debts:
- Certain tax debts
- Penalties or fines for breaking the law
- Child support or alimony
- Debts due to a DUI
Student loans and regular income tax debt are not generally dischargeable, but there are exceptions to this. You may have to convince the court, or contact the government agency who issued the debt. You should not count on having those debts cancelled.
Debts which can be discharged unless a creditor objects
Sometimes, a creditor will object to discharging a debt. In this case, the creditor has to convince the court that the debt should not cancelled, for example:
- A debt due to willful or malicious acts
- A debt due to fraud, embezzlement or larceny
- Any debt not listed on the bankruptcy papers
Alternatives to bankruptcy
A bankruptcy can help you get a fresh start, but it is not an easy process. It is important for you to fully understand your options and to know what debts you can discharge and which ones stay with you. Chapter 7 bankruptcy is not for everyone. If you have a significant amount of debts which cannot be discharged or which creditors may object to having discharged, a bankruptcy attorney can help assess your situation to find the best solution.
A bankruptcy is not the end of the world, but it might be the right solution. If you are considering a bankruptcy, it can be beneficial to have legal counsel who can give you the confidence you are making the right choice in your circumstances.