Bankruptcy can be a helpful tool if you get in debt over your head. Most debt will be discharged totally in Chapter 7 bankruptcy, leaving you with a clean slate, and most debt will be readjusted to a point that you can manage them well in Chapter 13 bankruptcy. Once the bankruptcy has been finalized, you will not have to go back and pay off old loans or debts, which relieves the financial burden for many consumers.
Almost all debt can be discharged in both types of bankruptcy (albeit in different ways). Debts that are discharged include:
- Credit cards
- Unsecured loans
- Deficiency balances on major purchases, such as cars or boats
- Medical bills
- Lawsuits and judgments (with the exception of cases of fraud and certain other actions)
- Unpaid rent or mortgages
- Unpaid utilities
- Foreclosure balances
In Chapter 7 bankruptcy, you have no responsibilities related to this debt once your assets have been liquidated and the debts have been discharged. In Chapter 13 bankruptcy, you will be able to keep certain assets so long as you continue to pay the monthly amount determined by the courts on time. After the three to five year period of paying this amount to the court, your debts are similarly discharged for good.
What Debts Cannot Be Discharged in Bankruptcy?
Although most debt can be discharged in bankruptcy, there are certain exceptions to this rule. The following are the most common debts people have that cannot usually be discharged through bankruptcy proceedings.
- Student loans
- Taxes and tax liens
- Alimony and child support payments
- Debts acquired by fraud or incurred due to other criminal actions
- Debts not listed on your bankruptcy petition (unscheduled debts)
While there are some exceptions to this, few of these types of debts will be erased if you file for bankruptcy. Sometimes this can be a burden on the debtor, especially more recently in the case of student debts. (You can read more about student loans and bankruptcy here.)
Another thing to remember is that any debts that creditors can prove that you never intended to pay may be excluded from the bankruptcy by the courts. Generally, this happens when excessive purchases of luxury items or high cash advances happen within the three months before you file. In this case, the creditor may dispute the bankruptcy claim subject to court approval. Otherwise, the courts rarely exclude debts that could normally be discharged.
It is never easy to decide whether or not a bankruptcy will help you solve your financial problems, but at least we can make the process of solving such problems easier. If you are currently struggling to manage your debts, call Cleveland bankruptcy law firm Luftman, Heck & Associates today at (216) 586-6600 for a free consultation to see if bankruptcy filings could minimize your debt burden.