What Type of Debt Does Bankruptcy Eliminate?

When people file for bankruptcy, they often consider it to be a cure-all. They think bankruptcy can eliminate all debts they have. While this is the case in most situations, there are certain debts that cannot be eliminated.

Because of this, you need to be sure that the debts you have will be eliminated in bankruptcy. Otherwise, bankruptcy may not be worth it based on the cost and effort.

If you have fallen on hard times, there are two types of bankruptcy that can help: Chapter 7 and Chapter 13. What debts can they eliminate? Here’s what you need to know.

Chapter 7 Bankruptcy

Chapter 7 is known for giving consumers a fresh start. It allows them to eliminate most debts completely. This type of bankruptcy can wipe out most unsecured debts. These include credit card debt, personal loans, medical bills, and utility bills (including phone bills). In some cases, this bankruptcy can also discharge your personal liability on secured debts, such as car loans. It may also erase deficiency balances after a repossession or foreclosure, as well as judgments from unpaid unsecured debts. The trick is that you have to list every debt you want discharged in your bankruptcy filing. If you do not include your medical bills, for example, then they won’t get wiped out.

Some debts are not discharged in Chapter 7 bankruptcy. Student loans are typically not discharged in bankruptcy, although they can be in very rare cases, such as if you can prove extreme financial hardship, which is not easy. Other debts that are not erased in bankruptcy include alimony, child support, taxes, and debts resulting from civil lawsuits in which you were found liable for injury or death. However, if you have debts for property damage, they may be discharged.

Chapter 13 Bankruptcy

Unsecured debts, such as credit cards, medical bills, personal loans, and utility bills, are not secured by collateral. You will likely be ordered to pay some of these debts through your Chapter 13 plan. However, once your repayment period ends, the court will usually discharge the remaining balance. So your debts will not be eliminated right away. It will take three to five years.

There is one thing you need to keep in mind, though. Bankruptcy law requires that all payment plans treat unsecured debts in the best interests of creditors, which means that unsecured creditors must receive at least as much as they would have if the consumer filed for Chapter 7 bankruptcy.

Contact Our West Palm Beach Bankruptcy Attorney Today

Bankruptcy can help eliminate many types of debt. The type of bankruptcy you choose will be the deciding factor.

West Palm Beach bankruptcy attorney Brian K. McMahon, P.A. can guide you through the bankruptcy process and help you make the right decisions. To schedule a consultation, fill out the online form or call (561) 658-1789. We serve the West Palm Beach, Boca Raton, Port St. Lucie, and South Florida areas.