When we talk about discharging debts in bankruptcy, we are usually referring to a Chapter 7 bankruptcy. Typically, a Chapter 13 bankruptcy involves a restructuring of debt rather than a discharge, or forgiveness of debt. For that reason, for most people the main goal of filing for Chapter 7 bankruptcy is to discharge / wipe out their debts. For example, while there are many other types of debt that Chapter 7 will discharge, credit card debt is one of the most commonly discharged debts.
While most debts can be wiped out in Chapter 7 bankruptcy, some cannot. Understanding which debts can and cannot be discharged in bankruptcy can be an important consideration in deciding whether to file for bankruptcy.
A discharge releases individual debtors from personal liability for a debt and prevents the creditor owed that debt from taking any collection actions against that debtor. In other words, the debtor is no longer legally required to pay any debts that are discharged.
Obligations That Cannot be Discharged
Although a debtor is not personally liable for discharged debts, a valid lien against property (whether personal property or real estate) that has not been avoided in some way in the bankruptcy case will still apply. These debts are called secured debts, as the debt itself is secured with an interest in the property. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien, even though the personal obligation to pay the debt may be discharged.
Federal student loans are another example of a type of debt which generally cannot be discharged in bankruptcy. By operation of the law, and not because of a security interest in a debtor’s assets, these obligations cannot be discharged.
The Bankruptcy Code lists 19 categories of debt that cannot be discharged. Everything that does not fall within these categories can be discharged. If in doubt, contact a local bankruptcy attorney who can advise you which debts will be subject to discharge and which will not.
Which Debts Can be Discharged?
Although not all debts can be discharged, the majority of a person’s debts will be discharged through Chapter 7, especially in the absence of extraordinary circumstances. Only debts that arose before the date of filing for Chapter 7 will be discharged, however. A debtor will still be responsible for any debt incurred after filing a petition but before receiving a discharge.
Below is a list of the most commonly dischargee debts. However, any misconduct or fraud in connection with the below categories may affect whether they can be discharged or not. Again, if in doubt, contact a local bankruptcy attorney.
Commonly Discharged Debts:
1. Credit card charges (including overdue and late fees)
2. Collection agency accounts
3. Medical bills
4. Personal loans from friends, family, and employers (you may also be discharging those relationships, though, and there is nothing a bankruptcy court can do about that!)
5. Utility bills (past due amounts only, not future bills)
6. Dishonored checks (unless based on fraud. Beware, there may be criminal penalties for bad checks)
7. Some student loans (only in a few rare circumstes)
8. Deficiency balances after repossession
9. Auto accident claims (except those involving drunk driving)
10. Personally guaranteed business debts
11. Money owed under lease agreements (includes past due rent). Note, this may not prevent you from being evicted. Check with your attorney.
12. Civil court judgments (unless based on fraud)
13. Certain tax penalties and unpaid taxes past a certain number of years
14. Attorney fees (except child support and alimony awards)
15. Revolving charge accounts (except extended payment charges)
16. Social security over-payments (again, be aware that if fraud is involved, you will probably not be able to discharge this obligation), and
17. Veterans assistance loans and over-payments (absent fraud).