What debts can I eliminate?

Chapter 7 bankruptcy allows debtors to obtain a fresh financial start by discharging most, if not all, of their pre-bankruptcy debts. Discharging a debt through bankruptcy means you are no longer liable for it and the creditor cannot take any collection actions against you. An experienced bankruptcy attorney can help you understand the entire bankruptcy process as well as the Chapter 7 discharge.

Types of Debt

There are generally three types of debt in bankruptcy: secured, priority unsecured, and general unsecured.

Depending on the type of debt, when the debt was incurred, and what your intentions are concerning any property securing the debt, you may or may not be able to discharge your liability through Chapter 7 bankruptcy.

Secured Debts

Secured debts are those for which certain property has been pledged as collateral. The most common examples include: mortgage loans, car loans, property taxes or property tax loans, and purchase money loans for furniture, jewelry or appliances. Typically, if you reaffirm a secured debt in a Chapter 7 bankruptcy so you can keep the collateral, the debt will not be subject to the Chapter 7 discharge, meaning you will still be liable for it after bankruptcy. If you decide to surrender the collateral or you are able to avoid the creditor's lien, however, you will most likely be able to discharge the debt.

Priority Unsecured Debts

Priority unsecured debts include but are not limited to: state and federal income taxes, child support and alimony, wages owed to employees, contributions to employee benefit plans, and claims against you for death or personal injury resulting from driving or boating while intoxicated. Aside from income taxes that meet certain criteria, priority unsecured debts are generally nondischargeable, and even after a Chapter 7, you will still have to repay them.

General Unsecured Debts

General unsecured debts include: credit cards, personal loans, lines of credit, medical bills, utility bills, signature loans and all other debts that are not secured by any collateral or defined as priority by the Bankruptcy Code. These debts are usually dischargeable, although certain factors may affect the dischargeability of a general unsecured debt. For instance, if you purchase luxury items with a credit card right before you file Chapter 7 bankruptcy, that particular debt may not be dischargeable. Also, even though a student loan is a general unsecured debt, you can only discharge a student loan if you can show extreme hardship, which is a difficult standard to meet.

If you are considering Chapter 7 bankruptcy and want to know which of your debts can be discharged and which ones cannot, contact a knowledgeable bankruptcy lawyer today. A qualified bankruptcy lawyer will help you with all aspects of filing bankruptcy.