What Debts Can Bankruptcy Eliminate?

Bankruptcy can eliminate many common debts, but not every obligation is dischargeable. Learn how bankruptcy may affect credit cards, medical bills, loans, judgments, taxes and other debts.

Bankruptcy Can Eliminate Many Types of Debt

One of the most important questions to answer before filing bankruptcy is what will happen to your debts.

Bankruptcy can eliminate many common financial obligations, particularly unsecured debts.

However, some debts generally survive bankruptcy, and others require a more detailed analysis.

The treatment of a particular debt can also differ depending on whether you file Chapter 7 or Chapter 13.

Credit Card Debt

Most ordinary credit card debt can generally be discharged in bankruptcy.

There are exceptions. For example, debts involving fraud or certain charges or cash advances incurred shortly before bankruptcy may receive additional scrutiny.

For most people dealing with long-standing credit card balances, however, bankruptcy can provide substantial relief.

Medical Bills

Medical debt is generally unsecured debt and is commonly dischargeable in bankruptcy.

There is no special bankruptcy category that makes ordinary medical bills nondischargeable simply because they resulted from medical treatment.

Personal Loans and Collection Accounts

Many unsecured personal loans and collection accounts can also be discharged.

This can include accounts that have been sold or transferred to collection agencies.

Lawsuit Judgments

Many judgments arising from ordinary debts can be discharged, but the nature of the underlying debt matters.

Certain judgments involving fraud, intentional misconduct or other conduct specifically addressed by bankruptcy law may not be dischargeable.

Vehicle Repossession Deficiencies

If a lender repossesses and sells a vehicle for less than the amount owed, you may be left with a deficiency balance.

That remaining balance can often be treated as unsecured debt and discharged in bankruptcy.

What About Income Tax Debt?

Taxes require a more detailed analysis.

Certain older income tax debts may be dischargeable if specific legal requirements are satisfied. Other tax obligations are not dischargeable.

Determining how bankruptcy will affect tax debt requires looking at factors such as the type of tax, when the return was due, when it was filed and when the tax was assessed.

What Debts Generally Cannot Be Eliminated?

Some common obligations that generally are not discharged in Chapter 7 include:

• Child support and alimony

• Most student loans unless additional legal requirements are satisfied

• Many recent tax debts

• Certain debts resulting from fraud or intentional misconduct

• Certain fines and penalties

• Other obligations specifically made nondischargeable by bankruptcy law

Secured debts also require special consideration when you want to retain the collateral securing the debt, such as a house or vehicle.

Chapter 13 May Treat Debt Differently

A debt that cannot simply be eliminated in Chapter 7 may sometimes be addressed through a Chapter 13 repayment plan.

Chapter 13 can be particularly useful for mortgage arrears, vehicle debt, certain taxes and other obligations that require more than simply obtaining a discharge.

Find Out What Would Happen to Your Debts

You should not assume that bankruptcy will—or will not—eliminate a particular debt without reviewing the details.

I can review your creditors and explain which debts are likely to be discharged, which may need to be paid through a Chapter 13 plan and which are likely to remain after bankruptcy.

Schedule a free consultation to find out how bankruptcy may affect your particular debts.