When it comes to bankruptcy, there is a common misconception that all debts will be discharged. This is not true as there are some debts that cannot be discharged. You need to know the debts that can be discharged so you can be better prepared in case you are thinking of going to court to file for bankruptcy.
When a debt is discharged, it means you are no longer liable for it. The debt will still appear on your credit report for a couple of years. Creditors are not allowed to collect their debts from you. This happens when you file under chapter 7. However, when you file under chapter 13, you are given between three to five years to pay your debts. After that period, the remaining debts that can be discharged are discharged. You can read this narrative post to get more information on the debts that are discharged in bankruptcy.
Debts Discharged in Chapter 7
When you file for bankruptcy under chapter 7, you will get rid of most of your debts. The debts that will be discharged are those you incur before you file for bankruptcy. This does not mean that you can get into debt again and go scot free. You will be responsible for any debt that comes after you filed for bankruptcy.
Here is a list of debts that will be discharged when you file for bankruptcy.
- Hospital bills
- Credit card bills
- Any accounts held by debt collectors
- Utility bills
- Excess amounts after repossessions
- Personal injury claims with the exception of accidents caused by drunk driving.
- Bad checks with the exception of fraudulent ones
- Rent arreas and lease fees
- Civil lawsuit orders with the exception of fraud cases.
- Back taxes and penalties
- Veteran assistant loans and social security benefits that was overpaid.
- Business credit
- Charge account balances
Debts Discharged in Chapter 13
Chapter 13 treats debts a bit differently as they cannot be discharged right away. There is a repayment period of three to five years where you are expected to repay the creditors. Secure loans will be repaid during this period. If you have arreas, you will continue your normal payments while paying the arreas. You can also choose to hand over ownership of the collateral you used to get the loan. After the specified repayment period relapses, the remaining debt will be discharged. Most of the debts listed under chapter 7 can be discharged. However, there are debts that can be discharged under chapter 13 that cannot be discharged under chapter 7. These include;
- Debts that come when you intentionally damaging your property. However, if you maliciously injure another person, that debt will remain.
- If you incurred a debt to pay a non-dischargeable debt like student loans, the debt can be discharged.
- With the exception of child support and spousal support, any other debt arising from separation and divorce settlements can be discharged. This includes attorney fees.
- Homeowners who have taken second mortgages or home equity loans can benefit from filing for bankruptcy under chapter 13. They can be stripped if the amount owed is more than the first mortgage. The stripped liens is not covered by the property and at the end of the repayment period, any balances are discharged.
When it comes to filing for bankruptcy, you need to know which debts are discharged under each chapter. This will make you know whether to file under chapter 7 or chapter 13. When filing for bankruptcy, you need to be honest about all your debt. Any debt you do not indicate will not be discharged.
You also need to inform your cosigners before you file for bankruptcy since they will be held liable for the entire debt amount. You can make things easier by making payments to settle the debt since it is your burden. If you shared the money with them, you can make payments for your part and leave the rest for them.
Filing for bankruptcy should be your last resort when there is nothing else you can do concerning your debt. It does a number on your credit score and will be in your records for a few years. While it gives you a chance to start over, there are some debts you will carry with you.