Michael D. Hart, P.C.

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Discharging Debt With Chapter 7 Bankruptcy

| Sep 17, 2020 | Chapter 7 Bankruptcy |

For those who qualify, filing for Chapter 7 bankruptcy can be a very quick and effective way to get rid of debt and gain a fresh financial start. Chapter 7 works by discharging debt in exchange for the liquidation of certain assets (on a case-by-case basis).

But even if you do qualify for it (based on what’s called a “means test”), it may still not be the most appropriate debt-relief option for you. The decision will largely depend on what your main sources of debt are and how they are classified.

What Can be Discharged?

Generally speaking, Chapter 7 allows you to discharge unsecured debts, or loans that are not backed by collateral. These include things like:

  • Medical bills
  • Credit card bills
  • Utility bills
  • Unsecured personal loans

If your debt is primarily due to credit card balances and medical bills (both very common scenarios), Chapter 7 might be ideal for you, because these can be discharged. If you are still paying off your mortgage or your car, however, these debts cannot be discharged because both your home and your car are the collateral on the loans.

What Cannot be Discharged?

One of the biggest sources of debt for younger Americans is student loans. Unfortunately, due to heavy legislative lobbying efforts by lenders, student loans can rarely ever be discharged in bankruptcy.

Other non-dischargeable debts and financial obligations include:

  • Court-ordered child support and alimony
  • Certain tax obligations (current and overdue)
  • Court-ordered restitution payments for certain criminal acts

An Attorney can Help you Understand your Options

If you are suffering under the weight of overwhelming debt, it is clear that you need some form of relief. But which option is best for you? Chapter 7? Chapter 13? Or a different option that doesn’t involve bankruptcy? The best way to get answers to these questions is to discuss your case with an experienced debt relief attorney.