What Debts Are Discharged in Chapter 7 Bankruptcy?

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 14, 2023

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What Is a Debt Discharge?

The phrase "debt discharge" represents a pivotal point in a bankruptcy proceeding. It's the much-anticipated moment when an individual, who has declared bankruptcy, is finally released from the obligation to repay certain debts.

It refers to the elimination of a debtor's legal responsibility to pay specific types of debts.

This provision is an integral component of bankruptcy law, offering a fresh start to individuals who find themselves in overwhelming financial situations.

What Is a Discharged Bankruptcy Chapter 7?

A discharge in bankruptcy means that you will be off the hook for paying the covered debts.

Not all debts can be discharged under chapter 7, but many of the most common forms of debt can. Credit card debt and medical bills are dischargeable, for example.

The vast majority of debts can be discharged under chapter 7 bankruptcy, including credit card debt, medical debt, and past-due utility bills.

Particularly under chapter 7, debtors who have filed for bankruptcy honestly and in good faith can get the majority of their debt erased.

Dischargeable Debts in Chapter 7 Bankruptcy

Bankruptcy under Chapter 7 is often known as a liquidation bankruptcy. It allows for the discharge of certain types of debts. The following are some categories of debts typically discharged in a Chapter 7 bankruptcy.

Credit Card Debt and Personal Loans

Credit card debt and personal loans are among the most common types of debts discharged in Chapter 7 bankruptcy.

This provision is applicable to both secured and unsecured credit card debts and personal loans.

Once these debts are discharged, the debtor is no longer legally obligated to make repayments, offering significant financial relief.

Medical Bills and Healthcare-Related Debts

Medical emergencies can result in enormous healthcare-related debts that a debtor might not be able to pay off.

In Chapter 7 bankruptcy, medical bills, along with other health-related debts, can be discharged. This opportunity allows individuals to move past the financial strain caused by unforeseen health crises.

Utility Bills and Service Fees

Utility bills and service fees, such as those for electricity, gas, water, and trash removal, can be discharged in a Chapter 7 bankruptcy proceeding.

This provision is especially helpful for debtors who have accumulated substantial amounts of unpaid utility bills.

Past Due Rent and Lease Payments

Unpaid rent and lease payments are other types of debts that may be discharged under Chapter 7.

This alleviates the financial burden for individuals who are unable to meet their housing obligations due to dire financial circumstances.

Business Debts for Sole Proprietors

Sole proprietors can find relief from certain business-related debts in Chapter 7 bankruptcy.

Such discharge can pave the way for entrepreneurs to rebuild their financial footing without the burden of past business debt.

Civil Court Judgments (Excluding Certain Types)

Chapter 7 bankruptcy permits the discharge of some civil court judgments. However, this excludes those related to fraud, willful injury, and certain other misconducts.

Overdue Taxes That Meet Specific Criteria

Although most tax debts are not dischargeable, Chapter 7 allows for the discharge of certain overdue taxes.

These include income taxes that are at least three years old, provided certain conditions are met.

What Cannot Be Discharged in Chapter 7 Bankruptcy?

Some debts that cannot be discharged in chapter 7 bankruptcy are student loans, spousal alimony, child support, debts owed to the government as fines, and debts incurred from intoxicated driving.

Besides these, any debts that the court deems fraudulent or in bad faith are unlikely to be discharged. Creditors may object to certain debts being discharged, but the court has the final say.

Child Support and Alimony Payments

As previously stated, child support and alimony payments are nondischargeable. This rule maintains the welfare of the children and former spouses dependent on these payments.

Recent Income Tax Debts

Income taxes for the years immediately preceding the bankruptcy filing are nondischargeable. Debtors are required to pay these taxes even after a Chapter 7 bankruptcy discharge.

Debts Resulting From Fraud or Intentional Misconduct

If a debtor has incurred debts due to fraudulent activity or deliberate misconduct, such debts are nondischargeable. This provision ensures individuals face the financial repercussions of their actions.

Student Loans (With Limited Exceptions)

Student loans are typically nondischargeable, except in rare circumstances of proven undue hardship. The standard for demonstrating undue hardship is high and the exception is rarely granted.

Court Fines and Criminal Restitution

Court-imposed fines, penalties, and criminal restitution orders cannot be discharged in bankruptcy. This ensures that financial punishments resulting from criminal activity remain intact.

Debts Arising From Personal Injury Caused by Intoxication

As with the exceptions to dischargeable debts, any debts related to personal injury or death caused by the debtor's intoxication are nondischargeable.

Homeowners' Association Fees and Condominium Assessments

Any fees or assessments owed to a homeowners' association or condominium board are not dischargeable in Chapter 7 bankruptcy. These debts must be paid even after a bankruptcy discharge.

Dischargeable and Nondischargeable Debts in Chapter 7 Bankruptcy

When Will My Chapter 7 Bankruptcy Be Discharged?

Your chapter 7 bankruptcy will discharge your debts around 60 days after the 341(a) meeting of creditors.

Typically, this means that the court will discharge your debts about four months after you first file. Barring any bad faith claims on your paperwork, chapter 7 cases tend to move quickly.

Conclusion

Chapter 7 bankruptcy provides individuals with a fresh start by discharging certain types of debts. This process eliminates the legal obligation to repay specific debts, offering significant financial relief.

Common dischargeable debts include credit card debt, personal loans, medical bills, utility bills, past-due rent, and certain business debts for sole proprietors. However, not all debts can be discharged in Chapter 7.

Nondischargeable debts include child support, alimony payments, recent income tax debts, debts resulting from fraud or intentional misconduct, student loans (with limited exceptions), court fines, and criminal restitution.

It's important to note that the timing of the discharge varies, but it typically occurs approximately four months after filing, following the 341(a) meeting of creditors.

Seeking professional advice is crucial in navigating the bankruptcy process and understanding which debts can be discharged.

What Debts Are Discharged in Chapter 7 Bankruptcy? FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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