What Debts Are Discharged in Chapter 7 Bankruptcy?
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.
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.
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.
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.
What Is Bankruptcy?
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Bankruptcy is a legal proceeding in which a debtor declares their inability to pay back their creditors.
The general idea behind declaring bankruptcy is that it allows debtors a “fresh start” while offering creditors a way to receive some or all of their owed payment.
Although some debts are forgiven, filing for bankruptcy affects the debtor’s creditworthiness.
When filing for bankruptcy, secured debts are usually paid for by the asset “securing” the debt, while many types of unsecured debts can be renegotiated.
Bankruptcy (Ch. 7, Ch. 13, & Ch. 11)
There are three common types of bankruptcy known as “chapters” in the U.S. bankruptcy code, each with varying criteria and consequences:
- Chapter 7 bankruptcy is the most common type of bankruptcy.
It is known as “straight” or “liquidation” bankruptcy.
It is designed to give a “fresh start” by discharging debts that cannot be repaid through the liquidation of the debtor’s assets.
Upon filing Chapter 7, a trustee is appointed to sell the debtor’s non-exempt assets and distribute the proceeds to creditors.
For individuals, the law exempts certain assets such as retirement funds, primary residence, tools for their trade, and personal vehicles from being liquidated to pay back creditors.
This pays back creditors some of what they are owed and protects individuals from having all of their livelihood taken from them.
- Chapter 13 bankruptcy, known as a “Debtor in Possession” bankruptcy, stands in contrast with Chapter 7 because it allows the individuals to keep from liquidating their property.
Chapter 13 creates a new, more affordable payment plan for the debtor to repay creditors, usually lasting 3 to 5 years.
Once the payment plan is finished, the remaining unsecured debts are discharged.
- Chapter 11 bankruptcy is primarily for companies, allowing them a break on paying their debts in order to restructure, come up with new terms for paying their creditors, and become profitable again.
This allows companies to stay afloat while coming up with a new way to pay back creditors.
Chapter 11 is the most complex and expensive form of a bankruptcy proceeding and should therefore be considered after other options have been explored.