What Type of Debt Can You Erase in Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is a powerful legal tool. You can wipe out most common consumer debts. If you’re drowning in debt, Chapter 7 offers a fresh start. The bankruptcy discharge eliminates most debts for good. Not all debts are equal, though. Understanding what gets erased matters before you file.

What Debts Are Wiped Out in Chapter 7 Bankruptcy?

Chapter 7 erases most typical American consumer debts. You can eliminate these common obligations:

• Credit card debt
• Medical bills
• Personal loans
• Payday loans
• Unpaid utilities
• Phone bills
• Personal liability on secured debts like car loans
• Deficiency balances after repossession or foreclosure
• Court judgments from unpaid credit cards or medical bills

The court automatically wipes out these dischargeable debts. The discharge order eliminates them permanently. Some debts only get discharged under specific conditions. Timing and your financial situation determine the outcome.

Can You Get Rid of Tax Debt in Chapter 7 Bankruptcy?

Tax debts over three years old typically qualify for discharge. You filed the return and three years passed. Recent tax debt doesn’t usually get discharged. Back taxes from the last three years remain your responsibility.

Timing matters enormously when discharging tax debt. Speak with a bankruptcy attorney for free to understand how timing affects your specific situation.

Can You Get Rid of Student Loan Debt in Chapter 7 Bankruptcy?

Some people successfully discharge federal student loans through bankruptcy. You must prove the debt causes undue hardship. The Department of Justice clarified guidance in late 2022. Proving undue hardship became easier after these changes.

You need to file a separate adversary proceeding. You file this after your main bankruptcy case. The court determines if you meet the undue hardship standard. No filing fee applies for this proceeding.

Private student loans typically can’t be discharged through bankruptcy.

What Debts Aren’t Erased in Chapter 7 Bankruptcy?

Some debts survive bankruptcy. These non-dischargeable debts remain after your case ends:

• Taxes from the last three years
• Alimony or child support
• Other debts from divorce proceedings
• Debts from personal injury caused while driving intoxicated
• Money owed to the government
• Court fines and penalties

You still owe these debts even after successful bankruptcy.

Are Secured Debts Like a Mortgage or Car Loan Dischargeable in Bankruptcy?

Secured debts work differently in bankruptcy. Mortgages and car loans attach to specific property. Your house or car serves as collateral. Chapter 7 discharges your personal obligation to pay. The lender can still repossess the property if you stop paying.

Surrendering the property eliminates the entire debt. You owe nothing further after surrender.

When Creditors Can Object to Discharge

Creditors rarely object to debt discharge. Objections happen when they suspect fraud or misrepresentation. Credit card companies may object if you lied on applications. Large purchases right before filing raise red flags. They argue you never intended to repay.

The bankruptcy court reviews creditor objections. Bankruptcy law determines who must prove their case. Losing means you remain responsible for that specific debt. Your other debts still get discharged.

Stop using credit cards when you decide to file. Avoiding objections matters more than short-term credit score impact. Discuss your budget concerns during required credit counseling. A credit counselor helps you manage without relying on credit.

Some Debts Can Only Be Erased in Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves a court-supervised repayment plan. Creditors receive some payment, though without high interest. You can discharge debts unavailable in Chapter 7. Property settlement debts from divorce qualify for Chapter 13 discharge.

You might qualify for Chapter 7 under the means test. Still, owing property settlement makes Chapter 13 worth considering. Speak with a bankruptcy attorney for free about your options. Chapter 13 plans last up to five years. The bankruptcy stays on your credit report for seven years.

A Quick Refresher on Chapter 7 and Chapter 13 Bankruptcy

Chapter 7 and Chapter 13 work differently. Each helps manage overwhelming debt in unique ways.

Chapter 7 basics you need to know:

• Chapter 7 wipes out qualifying debts without repayment plans
• Liquidation bankruptcy means trustees can sell unprotected property
• Exemptions protect certain property from liquidation
• Most filers don’t lose assets because of exemptions
• Chapter 7 works best for people with limited income

Chapter 13 basics you need to know:

• Chapter 13 reorganizes your finances through repayment
• Repayment plans last 3 to 5 years
• You catch up on missed payments during the plan
• Chapter 13 works well for people with regular income
• You keep important assets like houses and cars

Both bankruptcy types provide immediate creditor protection. The automatic stay begins when you file. Collections, lawsuits, and creditor actions stop immediately.

Filing Bankruptcy Provides Immediate Protection From Creditors

The automatic stay protects you when you file. Debt collectors must stop contacting you immediately. Banks and credit card companies face the same ban. The stay stops all collection actions. Wage garnishments end when the automatic stay begins.

Protection applies to almost everyone you owe. Two exceptions exist: domestic support and back taxes. Child support deductions from paychecks continue. The IRS can keep your tax refund for back taxes. The automatic stay ends when the court grants your discharge.