What Debts Are Dischargeable In Personal Bankruptcy?
Maybe you've fallen on some tough times, and you're considering filing for personal bankruptcy. While this can be a workable solution for discharging your debt and getting back on your feet, you'll want to make sure that the debts causing you trouble will actually be discharged during this process.
Medical Debt
While the Affordable Care Act has slightly reduced the number of Americans with overwhelming medical debt, there are still around 64 million people in the U.S. with medical bills that they are struggling to pay. Rising health care costs may not be covered by insurance, or the deductibles may be so high that people with medical emergencies still find themselves in trouble financially.
Under Chapter 7 bankruptcy, medical debts are considered unsecured, which means you had no collateral that backs up the debt. It's also considered nonpriority debt, which means that your trustee who manages all your debts through the bankruptcy process will not rank them as vital to pay off. Even if you do pay down some of your medical bills through bankruptcy, the remainder will be discharged.
Credit Card Debt
Credit card or consumer debt is also considered unsecured, and is generally discharged when you declare bankruptcy. You may have to make some payments toward the debt, depending on how your case is settled, but typically this type of debt is a very common reason to declare bankruptcy and regroup financially.
Tax Debt
Local and state governments, as well as the federal Internal Revenue Service, will want you to repay any tax debts that you have incurred. Tax debt is rarely completely discharged, but you can often reduce the amount owed by working with the government entity that you owe the tax to. The situations where you'd be able to discharge tax debt are complicated and would require a skilled bankruptcy attorney to assist you with.
Child Support and Alimony
If you owe this type of debt, filing bankruptcy will not discharge it. You will still owe the back payments that you've missed, and you'll potentially still have your paycheck garnished to pay these debts.
Student Loan Debt
It's rare that the bankruptcy court will permit you to erase your student loan debt. In order to do so, you have to prove that paying the loans back would be an "undue hardship" -- but almost none of the people who file for chapter 7 bankruptcy are able to show this. You can't simply be unemployed; you have to present concrete proof that you are permanently unable to work and are having trouble maintaining a minimum standard of living. So plan on those student loans staying with you in the future.
For more information about which debts can be discharged when you file for chapter 7 bankruptcy, contact a bankruptcy attorney, such as Donald T Tesch, PS.