The decision to file bankruptcy is never easy. Bankruptcy offers a “fresh start” when debts become overwhelming.
But before filing bankruptcy make sure you know what debts are dischargeable and what debts you can never get rid of.
Bankruptcy law recognizes that some debts must be paid, and you won’t receive a discharge from these debts in a bankruptcy case. Knowing what types of debts cannot be discharged can help you make the decision to file for bankruptcy or attempt to manage your debts.
What is a Discharged Debt
Unsecured debt discharged in Chapter 7 Bankruptcy releases individual debtors from personal liability for the debt and prevents the creditor from taking any collection actions against the debtor. There is no way to legally require a debtor to pay a debt once it has been discharged.
Secured debt like a home or car is different. Although a debtor is not personally liable for discharged debts, a valid lien that has not been made unenforceable in the bankruptcy proceeding will remain. Secured creditors may enforce the lien to recover the property secured by the lien.
Chapter 7 Bankruptcy Timeline
The Chapter 7 bankruptcy process typically takes about four to six months from the time the petition is filed to the time the debtor receives a discharge of their eligible debts.
However, the timeline can vary depending on several factors, including the complexity of the case, the court’s schedule, and whether any creditors challenge the discharge of certain debts.
Here is a general timeline of the Chapter 7 bankruptcy process:
Pre-filing credit counseling. Before filing for bankruptcy, the debtor must complete a credit counseling course from an approved provider. This usually takes a few hours and can be done online or over the phone.
Filing the petition. Once the credit counseling course is complete, the debtor can file the Chapter 7 bankruptcy petition with the bankruptcy court. This starts the bankruptcy process.
Meeting of creditors. About 30 days after the petition is filed, the debtor must attend a meeting of creditors. This is a meeting with the bankruptcy trustee and any creditors who wish to attend. It typically lasts about 10-15 minutes.
Discharge of eligible debts. If everything goes smoothly and no creditors object to the discharge of the debtor’s debts, the court will issue a discharge order about 60-90 days after the meeting of creditors. This order eliminates the debtor’s eligible debts, such as credit card debt, medical bills, and personal loans.
The timeline can be longer if any complications arise during the process, such as objections from creditors or the need for additional court hearings.
Most Common Chapter 7 Dischargeable Debts
In a Chapter 7 bankruptcy, certain types of unsecured debts can be discharged, which means they are eliminated and the debtor is no longer legally obligated to repay them. Here are some common types of unsecured debts that can be wiped out in a Chapter 7 bankruptcy:
- Credit card debt
- Medical bills
- Personal loans
- Payday loans
- Repossession deficiency balances
- Money owed under lease agreements (includes past due rent)
- Civil court judgments (unless based on fraud)
- Dishonored checks (unless based on fraud)
- Past due utility bills
- Collection agency accounts
- Certain tax debts (if they meet specific criteria)
It’s important to note that not all debts can be discharged in a Chapter 7 bankruptcy.
Most Common Chapter 7 Non-Dischargeable Debts
Except under rare, extreme circumstances these debts are not dischargeable under bankruptcy. Here are some common examples:
- Child support and alimony. These types of debts are considered priority debts and cannot be discharged through bankruptcy.
- Certain tax debts. Generally, tax debts cannot be discharged through bankruptcy. However, there are some exceptions. For example, income tax debts may be discharged if they meet certain criteria, such as being at least three years old and having been filed on time.
- Student loans. Student loans cannot be discharged through bankruptcy unless the debtor can demonstrate an undue hardship.
- Debts resulting from fraud or illegal activity. Debts that were obtained through fraudulent or illegal means, such as debts incurred through embezzlement, theft, or intentional misrepresentation, cannot be discharged.
- Fines and penalties. Fines and penalties imposed by government agencies cannot be discharged through bankruptcy.
- Debts not listed in the bankruptcy petition. If a debt is not listed in the bankruptcy petition, it cannot be discharged through bankruptcy.
- Debts resulting from willful or malicious injury. Debts resulting from willful or malicious injury to another person or property cannot be discharged.
Additionally, secured debts, such as mortgages and car loans, may not be dischargeable if the debtor wishes to keep the property securing the debt.
In those cases, the debtor may need to reaffirm the debt and continue making payments to keep the property.
It’s always best to consult with a bankruptcy attorney to determine which debts can be discharged in a Chapter 7 bankruptcy and to understand the potential consequences of filing for bankruptcy.