The Chapter 7 Discharge
Eliminating Common Consumer Debts through Chapter 7
If you pass the Chapter 7 means test and are able to file Chapter 7 bankruptcy, you may receive a discharge of certain unsecured debts (credit cards, payday loans, medical bills, utility bills, some personal loans and other debts that are not tied to a piece of property).
This discharge excuses your eligible unsecured debts (once discharged, you never have to pay for them), thus providing you with a fresh financial start.
In order to receive a discharge, the bankruptcy trustee in your Chapter 7 case has the option of liquidating or selling some of your non-exempt assets in order to pay your creditors back for your unsecured debts. However, most Chapter 7 petitioners do not have any non-exempt assets, thus meaning that there would be no sale of property.
A bankruptcy attorney can further explain how a Chapter 7 discharge could positively affect your own financial situation. Fill out the following form to connect with a bankruptcy attorney in your area and receive a free consultation regarding a possible discharge:
What Types of Debts May Be Discharged if You File Chapter 7 Bankruptcy?
Chapter 7 bankruptcy allows for certain unsecured debts completely discharged or eliminated, including:
- credit cards
- medical bills
- most personal loans
- payday loans
- certain judgments resulting from car accidents
- deficiencies on repossessed vehicles
- some older tax debts
As highlighted by the above list of debts, unsecured debt refers to any debt that is not backed by collateral (materials given as security for a loan). As an example, credit card debt is considered unsecured debt since a creditor cannot sue for any property as a result of you owing on this debt. In other words, there is nothing backing your credit card debt that a creditor could go after if you don’t pay this debt.
In contrast, a mortgage loan is a form of secured debt, as your home is a piece of property that a creditor could foreclose on if you do fall behind on and don’t make your mortgage loan payments.
Debts That Cannot Be Discharged in Bankruptcy
Certain types of unsecured debts are not dischargeable in Chapter 7 bankruptcy, including:
- most income tax debts (unless it is more than three years old, your tax return was filed both on time and correctly, and certain other requirements are met)
- most student loans (unless payment of the student loans is considered an "undue hardship" for the debtor)
- child support obligations
- most marital debts (i.e. debts incurred in a divorce or separation agreement)
- intentional torts (debts resulting from a willful or malicious act)
- debts incurred from personal injury or wrongful death caused while driving under the influence of alcohol or drugs
- most criminal fines and citations (i.e. court-ordered restitution or other debts incurred from breaking the law)
- debts incurred through a fraudulent act or under false pretenses or representations
- recent credit card purchases/cash advances (debts owed to a single creditor for luxury goods are not dischargeable if they total more than $500.00 and were incurred within 90 days of filing bankruptcy; cash advances greater than $750.00 and obtained within 70 days of bankruptcy filing are not dischargeable)
As you can see, getting the debt discharge in bankruptcy requires careful planning. A bankruptcy attorney can explain the discharge process in greater detail and answer your questions.
Fill out the form below to connect with a local bankruptcy attorney for a free consultation: