A bankruptcy discharge releases you from the legal obligation to pay certain debts. Here's what can be eliminated — and what typically cannot.
Filing bankruptcy allows you to get rid of certain debts. In legal terms, this is called a discharge of debts. The goal is to shrink what you owe so you can make a fresh financial start.
Whether you file Chapter 7 (a "straight" liquidation) or Chapter 13 (a reorganization with a repayment plan), a significant portion of your unsecured debts can be eliminated.
Not all debts are dischargeable. The following typically cannot be eliminated in bankruptcy:
House and car payments cannot be eliminated without surrendering the property.
Most recent tax obligations cannot be eliminated (with rare exceptions).
In most cases, student loans are not dischargeable.
Family support obligations cannot be eliminated.
Debts from injuries caused by driving while intoxicated are not dischargeable.
Debts from fraud — or credit cards "run up" right before filing — typically cannot be discharged.
Some older taxes may be eliminated under certain circumstances. Talk to a licensed attorney about how these rules apply to your specific debts.
When you're behind on your mortgage and foreclosure is approaching, filing Chapter 13 stops the foreclosure. Your mortgage itself isn't eliminated — instead, a restructured plan is proposed to let you catch up on arrears over time. Filing also protects against utility shut-offs.
If you've missed payments and a lender repossesses your vehicle, filing bankruptcy promptly can force them to return the asset. Under a Chapter 13 plan, missed payments are consolidated, and future payments are routed through the trustee.
Serious illness or an accident can wreck a family's finances. When it becomes difficult to keep up with medical bills and other debts, filing Chapter 7 can dramatically reduce — often eliminate — major medical debt.
Credit card debt is unsecured and typically fully dischargeable in Chapter 7 — as long as there was no fraud and no recent "run-up" before filing. Chapter 13 can also reduce credit card debt through the repayment plan.
Bankruptcy paperwork seems simple enough — especially since the 2005 law changes. It's tempting to do it yourself. You may feel you have nothing to lose, or you may be the type of person who usually handles his own work.
But be careful. Mistakes in bankruptcy filings can have serious consequences:
A document preparation service like ours can help organize and type the forms — but we cannot give legal advice. If your situation is complex, consider consulting a licensed attorney.
Call us for a free evaluation. We'll tell you what's possible.