What Debts are Discharged in Bankruptcy?
Most debts are discharged in a bankruptcy filing, but there are exceptions. Generally, the following debts are discharged in either chapter 7 bankruptcy or chapter 13 bankruptcy: credit card debt, medical debt, payday loans, unsecured debt, personal loans (friends and family), unpaid lease payments, overpayments of government benefits (except when incurred through fraud), and unpaid account balances for services and merchandise. While overpayments of government benefits are generally discharged in a bankruptcy, if you apply for that same benefit again, the prior debt will be recovered by the agency out of new benefits.
In chapter 7 bankruptcy, the unpaid balances on car debt and mortgages are discharged, but lenders’ liens are unaffected by the bankruptcy discharge. If you want to keep your home, you must continue making your mortgage payments. If you want to keep your car, you must make your payments, but you may also have to reaffirm the debt (reaffirmation) or redeem the collateral (redemption). Dues and assessments owed to homeowner associations, as of the date of bankruptcy filing, are discharged. But dues and other obligations, accruing from the filing of bankruptcy and until there is a new owner, are not discharged. Student loans are generally not discharged, except in cases of hardship.
In chapter 13 bankruptcy, debts arising out of divorce may be discharged, in addition to those debts, listed above, that are discharged in both chapter 7 and chapter 13 bankruptcies.
What debts are not discharged in bankruptcy? Certain tax debt, criminal fines and penalties, debts not listed in the bankruptcy schedules, and all domestic support obligations are not discharged in bankruptcy. Child support, alimony, and spousal support obligations are never discharged in a bankruptcy filing. Tax debt is not discharged, except income tax liabilities that are three years old might be dischargeable. In chapter 7 bankruptcy, divorce debts are not discharged. In chapter 13 bankruptcy, debts to secured creditors are not discharged, unless the chapter 13 plan provides for surrender of the collateral to the lender.
Also, the court may find that certain debts are not dischargeable if the creditor files a lawsuit in the bankruptcy court. If, after a trial, a creditor proves that a debt was incurred through fraud, embezzlement, larceny, or willful and malicious injury, the debt will not be discharged in bankruptcy.
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The statements of law made here are general statements of law, effective at the time published and subject to change from time to time. These statements are not intended, nor may they be construed, to be applicable to any particular set of factual circumstances nor to any particular person. I recommend that all readers seek the assistance and advice of an experienced bankruptcy lawyer for guidance in their particular circumstances.
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