When you file for bankruptcy, you might assume that bankruptcy protection will discharge all of your debts. However, this is not the case for all as bankruptcy cannot completely discharge some debts because they do not qualify. In general, bankruptcy is a complex process. And, while you may think you can get through it on your own, you should enlist the help of a bankruptcy attorney who can guide you through the process and make sure you are getting the best possible outcome. Most commonly, debtors file Chapter 7 Bankruptcy to clear their debt when they have little to no assets and don’t have a large income. A Chapter 13 Bankruptcy filing allows the debtor to propose a payment plan to consolidate and repay their debt.
Here, we discuss some common types of debt and whether bankruptcy protection covers them.
In most cases, filing Chapter 7 Bankruptcy can wipe credit card debt. Upon filing for bankruptcy, you will have an obligation to surrender your credit cards to your court-appointed trustee. You will be able to file for a new secured credit card during the bankruptcy process. However, you will be responsible for paying any debt you incur with the new credit card. Beware of the temptation to run up your balances just before filing for bankruptcy as this can be viewed as fraud and will have consequences.
Medical bills are considered non-priority debts and can be discharged during bankruptcy. They are unsecured debt and filing for Chapter 7 Bankruptcy can eliminate almost all of these debts. You may have used credit cards to pay for some of these medical bills. This means that bankruptcy protection will also cover those credit cards. There is no specific dollar amount limit that can be discharged for medical bills, and there typically will not be a payment plan.
Although student loans are treated as non-priority unsecured debts like medical bills and credit cards, it can be challenging to have them discharged. You must be able to prove that repaying places an undue hardship on your life. If you are looking to get these debts discharged, you need to discuss your options with your bankruptcy attorney.
Your mortgage cannot be discharged and you will need to continue to make payments throughout the bankruptcy process. If you stop making payments with the impression that your bankruptcy will protect your home, you are mistaken. Your lender can and will take legal action against you which might lead to foreclosure. However, if you fall behind on your mortgage before the bankruptcy filing or even during the Ch. 13 plan, you may be able to include your mortgage arrearage in your plan and catch up over up to 60 months. Further, if you have a Home Equity Line of Credit (HELOC) or 2nd mortgage that is fully unsecured (meaning the property is worth less than the balance of the senior/1st mortgage), then you can strip the HELOC off in Chapter 13 bankruptcy.
Chapter 7 or Chapter 13 Bankruptcy cannot discharge some debts. Sales Tax, Payroll Tax, and Excise Tax are non-dischargeable. However, income tax older than 3 years may be dischargeable. Child support, alimony, and other domestic support obligations cannot be discharged. Student loans discharge ability is currently possible but it can be difficult and expensive to establish and prove to the court that your hardship meets the high standard applied by most courts today. At the time of writing this article, there is a great deal of legislation and political pressure to modify this unfair standard. Also, criminal restitution, civil restitution or DUI damages, and civil judgments for fraud are also not dischargeable.
Now that you know more about different types of debt, you also know what your next step is!
When debts become insurmountable, and there is no end in sight, you may need to consider your options for bankruptcy. Contact the Law Offices of Emil Fleysher, P.A., at 888-886-0020 to get started. We will be able to find the best financial solution for your needs and guide you through the bankruptcy process. Our dedicated staff is here to help you get a fresh financial start.