At the end of the bankruptcy process, most of your debts will be eliminated and you’ll have the ability to start over. But, the decision to file for bankruptcy isn’t one to be made lightly. Bankruptcy is a serious enough process that you need to complete both pre-filing counseling and a debtor education program after filing. While pre-filing counseling looks at your financial situation to help you determine if bankruptcy is the most appropriate choice, debtor education helps you get back on your feet. Part of the process of filing for bankruptcy is understanding the difference between dischargeable debts and non-dischargeable debts.
What Does Dischargeable Mean?
A dischargeable debt is one that can be wiped off of your slate by the bankruptcy process. When your debt is discharged, you have no further responsibility for paying it. That doesn’t mean that you can get off without paying any of it, though. If you file for Chapter 13 bankruptcy, you will usually have a repayment plan that involves paying back some portion of what you owe. At the end of the repayment plan, any remaining, eligible debts are discharged. If you are eligible for a Chapter 7 bankruptcy, also called a liquidation bankruptcy, you’ll most likely not have to pay any part of the dischargeable debt at all. Once a debt is discharged, a creditor can’t come after you or expect you to pay it.
Types of Debt
The types of debt that are dischargeable are usually unsecured, personal debts. Any credit card debt or personal loan debt you have is discharged under a Chapter 7 or Chapter 13 bankruptcy. Your medical debt can also be discharged, as can any personal debts that went to a collection agency.
Chapter 13 vs. Chapter 7
Some debts can be discharged under Chapter 13 bankruptcy, but not under Chapter 7. For example, if you used a credit card to pay your tax obligations, but still owe the credit card debt, that can be discharged under Chapter 13, but not under Chapter 7. You can also discharge debts owed to a former spouse after a divorce or separation under Chapter 13, as long as it is not child support or alimony. For example, if you and your former spouse had a credit card together and you were assigned responsibility for the debt, but don’t pay it, the card company can go after your spouse. Your spouse can then come to you, demanding the debt. While under Chapter 7, you can’t escape that debt, you can under Chapter 13.
Debts That Can’t Be Discharged
A number of debts can’t be discharged when you file for either type of bankruptcy. According to the US Courts, there are 19 categories of nondischargeable debt under Chapter 7 and a slightly lower number of non-dischargeable debts under Chapter 13. A common example for both types of bankruptcy is student loan debt. Another common example is child support or alimony.
Secured Debts
Things can be a bit more tricky when it comes to secured debts, such as a car loan or mortgage, and bankruptcy. You can discharge a mortgage or car loan debt when you file, but you can’t discharge the lien on the property, meaning that your creditor has the ability to foreclose on your home or repossess your car if you stop paying the debt.
Bankruptcy can give you a fresh start, but it’s important to understand what your obligations really are when you file. Whether you need pre-filing counseling or after filing debtor education, Fresh Start Today by CESI can help you get back on your feet.
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