What Types of Debts Can be Discharged in Chapter 7?
If you’re considering filing for bankruptcy, you likely by now know that there are two chapters of bankruptcy that are commonly used by individuals and couples. Chapter 7 bankruptcy is particularly good for those who have a lot of unsecured debt. Chapter 13 works better for secured debt. In this article, we’ll discuss unsecured debts and how they can be discharged in Chapter 7.
Unsecured versus Secured Debt
Unsecured debt is debt that is not backed by collateral. As an example, your mortgage is a secured debt that is backed by the house itself. If you don’t pay, you lose the house. Chapter 7 can discharge your obligation to pay arrearages on your mortgage, deficiency balances, and other types of loan-related penalties, but it cannot do so while simultaneously preventing the loss of your house.
Unsecured debt, on the other hand, is most often credit card debt. Medical debt also falls under this category along with personal loans, personal injury judgments, rent, utility bills, and any other debt that is not secured by collateral.
Dischargeable versus Non-Dischargeable Debts
Now that we know what types of debt Chapter 7 can discharge, we can move on to the exceptions. Not all types of unsecured debts can be discharged in Chapter 7. There are some types of debts that are protected by law. Of these, there are some types of debts that can never be discharged under any circumstances and debts that can be discharged under extenuating circumstances. These include:
- Secured debt – Your obligation to pay a secured debt can be discharged in Chapter 7. However, you cannot discharge the debt and keep the property that secures the debt. If this is a concern, Chapter 13 bankruptcy may be right for you.
- Student loans – Student loans are only dischargeable under extenuating circumstances. Generally, it requires a total permanent disability.
- Debt incurred due to fraud – In terms of bankruptcy, debt acquired with no intention of ever paying it back is considered fraud. If a creditor raises the point that you acquired the debt shortly before you filed for bankruptcy because you knew you were going to be filing for bankruptcy, you may get stuck with the debt on your record.
- Tax debts – There are some types of tax debts that you can discharge in bankruptcy. Others you can’t. Your attorney can help determine if your tax debts are dischargeable or not.
- Personal injury judgments – Personal injury judgments are almost always dischargeable. However, personal injury judgments acquired after DUI convictions may not be.
- Child or spousal support payments – You can’t discharge your financial obligation to your children or former spouse via bankruptcy.
Talk to a Jacksonville Bankruptcy Attorney Today
If you’re in a difficult financial situation right now, and we know a lot of people are because of the government shutdown, a Jacksonville bankruptcy attorney can help you determine if discharging your debts would be better than accruing interest on them. Call the Law Offices of Carol M. Galloway, P.A. today to learn more about your financial options for the future.