Founder
When facing financial challenges, bankruptcy can provide a fresh start by wiping out certain debts. However, not all debts are treated equally. Understanding which debts can be discharged—and which cannot—will help you determine whether bankruptcy is the right solution for your situation.
At Dennery Law, we believe in empowering you with the knowledge to make informed decisions. In this blog, we’ll explain what debt discharge means, outline the types of debts that can be erased, and highlight those that typically remain after bankruptcy.
What Does “Discharged Debt” Mean?
When a debt is discharged in bankruptcy, it means you are no longer legally obligated to pay it. Creditors cannot take any further action to collect the debt, such as filing lawsuits or contacting you for payment.
The types of debts that can be discharged depend on the chapter of bankruptcy you file:
- Chapter 7: Focuses on eliminating unsecured debts quickly, often within a few months.
- Chapter 13: Involves a repayment plan where some debts may be reduced or discharged after 3–5 years.
Debts That Can Be Discharged
Certain debts are eligible for discharge under most bankruptcy cases, especially unsecured debts. These include:
1. Credit Card Debt
Credit card balances, including late fees and interest, are among the most common debts discharged in bankruptcy.
2. Medical Bills
If overwhelming medical expenses are a significant burden, bankruptcy can help eliminate them.
3. Personal Loans and Payday Loans
Unsecured personal loans and payday loans are typically dischargeable, as they are not tied to collateral.
4. Utility Bills
Unpaid utility bills, such as electric or water bills, can be discharged in bankruptcy.
5. Past-Due Rent
If you owe rent to a landlord, bankruptcy can discharge this debt, though it won’t prevent eviction if you’re still in the property.
6. Old Tax Debts (In Certain Cases)
Income tax debts may be discharged if they meet specific criteria, such as being more than three years old and filed on time.
Debts That Cannot Be Discharged
Some debts are protected from discharge due to public policy reasons or their nature. These debts remain your responsibility after bankruptcy:
1. Student Loans
Most student loans cannot be discharged in bankruptcy unless you can prove “undue hardship,” which is a difficult legal standard to meet.
2. Recent Tax Debts
Tax debts from the past few years, payroll taxes, and fraud-related tax liabilities are generally not dischargeable.
3. Child Support and Alimony
Family support obligations, such as child support and spousal maintenance, are considered priority debts and cannot be eliminated.
4. Debts From Fraud or Misconduct
If a debt was incurred through fraud, embezzlement, or other intentional misconduct, it may not be discharged.
5. Fines and Penalties Owed to Government Agencies
Traffic tickets, criminal fines, and penalties owed to government entities cannot be discharged.
6. Secured Debts Without Surrendering Collateral
While you can discharge the personal liability for secured debts (like a car loan or mortgage), the lender may still repossess or foreclose on the collateral unless payments are current.
Exceptions and Special Cases
Co-Signed Debts
If you have co-signed a loan, your discharge won’t protect the co-signer from creditors. They remain liable for the debt.
Luxury Purchases and Cash Advances
Debts for luxury items purchased shortly before filing for bankruptcy or large cash advances may not be dischargeable if deemed abusive.
Chapter-Specific Differences
In Chapter 13 bankruptcy, some debts that are not dischargeable in Chapter 7 (such as certain divorce-related debts) may be reduced or eliminated through the repayment plan.
How to Determine Which Debts Qualify
Determining whether a debt is dischargeable requires careful review of your financial situation, the type of debt, and the specifics of your bankruptcy filing. At Dennery Law, we’ll analyze your case thoroughly to identify the best strategy for achieving relief from your debts.
Life After Bankruptcy: Managing Remaining Debts
While bankruptcy can provide significant relief, managing non-dischargeable debts post-bankruptcy is just as important. Some strategies include:
- Negotiating Payment Plans: Creditors may be willing to work with you after bankruptcy.
- Budgeting for Priority Debts: Focus on paying off non-dischargeable debts to avoid further financial strain.
- Rebuilding Your Credit: A fresh start after bankruptcy allows you to work toward better financial habits and creditworthiness.
Bankruptcy offers powerful tools to help individuals and businesses overcome overwhelming debt, but it’s crucial to understand which obligations it can erase. At Dennery Law, we’ll guide you through the process, ensuring you know what to expect and helping you navigate the complexities of your financial situation.
If you’re struggling with debt and considering bankruptcy, contact Dennery Law today for a free consultation. We’re here to help you get the financial relief you deserve.