What Debt Does Bankruptcy Help Eliminate?
When your debts become overwhelming, bankruptcy may be a solution to consider. In most cases, Bankruptcy can either wipe out or significantly reduce or restructure financial obligations. However, not all debts can be discharged in bankruptcy. Before filing, it’s best to know exactly what type of debts can be discharged, and which cannot. The following gives an overview of the debts bankruptcy can and cannot eliminate.
How Bankruptcy Works
Debts Discharged by Chapter 7 & 13
Chapter 7 bankruptcy discharges unsecured debts, such as credit card balances, medical expenses, unsecured personal loans, unpaid rent, and unpaid utility bills. This means that once a Discharge is granted, you will no longer be responsible for paying those financial obligations back. The debt is legally repudiated.
Chapter 13 reorganizes debts in a repayment plan based upon the best interest of creditors, your existing assets, and disposable income, and what is dischargeable and what is not. These plans require you to make payments on what you owe for three to five years at a reduced interest rate. If you successfully make your payments, a percentage of the total unsecured debt you owe will be discharged at the end of the plan.
Additionally, there are some debts that can be discharged in a Chapter 13 that cannot be discharged in a Chapter 7. This includes certain debts incurred due to divorce, retirement account loans, liability for damaging someone else’s property, and certain debts incurred to pay non-dischargeable tax liabilities. However, there may be income tax implications that you should discuss with your attorney.
Regardless if you file under Chapter 7 or Chapter 13, certain debts are not dischargeable in bankruptcy. These are child support, alimony, government fines and penalties, court-ordered criminal restitution, debts arising from DWI-related injuries or death, as well as liability caused by willful or malicious conduct.
Typically, student loans can only be discharged if you show that paying them would cause undue hardship. This is extremely difficult to do under existing caselaw and is extremely rare. Student loans should therefore be considered non-dischargeable until congress changes the law. Most income tax obligations are non-dischargeable unless the debt is at least three years old from the time the taxes are assessed. Mortgages and car loans must be repaid to avoid foreclosure or repossession in most cases. To keep the property that is liened, the underlying debt must be repaid. This process is called Reaffirmation, and is entirely voluntary. If on the other hand, you wish to surrender the property, the debt can be discharged.
Why Bankruptcy Is Helpful
For those who have mostly unsecured debts, bankruptcy can offer a fresh financial start. It can also protect you from creditor harassment, wage garnishment, eviction, and lawsuits. Once the case is discharged, you can begin rebuilding your credit.
For help deciding if bankruptcy is right for you, turn to Thomas A. Corletta, Attorney & Counselor at Law in Rochester, NY. He will evaluate your financial situation and identify the most suitable debt relief option for you; Bankruptcy or non-Bankruptcy. Backed by 40 years of experience, Attorney Corletta is well-versed in bankruptcy law and will guide you through the process from start to finish. Call (585) 546-5072 to schedule a consultation, or visit his website to learn more about his services.
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