Through the liquidation (Chapter 7) or restructuring (Chapter 13) of debt, bankruptcy gives overburdened customers a chance for a fresh start. The bankruptcy court is referred to as “discharging” the debts in both situations.
This implies that debtors forfeit their right to pursue legal action against them, including attempting to collect a debt or reclaim property.
Consumers may take a breather and start improving their credit scores after filing for bankruptcy. What debts may and cannot be dismissed in bankruptcy is a recurring query.
Giving debtors a “new start” in their financial lives by relieving them of onerous obligations is one of the main objectives of the federal bankruptcy legislation passed by Congress.
Even though society values second chances, bankruptcy is not the only option. Some debts cannot be dismissed, while others are exceedingly challenging.
Employing a lawyer who can advise you on bankruptcy can help you make the best choices for your particular situation.
Two Different Personal Bankruptcy Types
What Exactly is Chapter 7?
Chapter 7 may be your best choice if your income is insufficient to meet your credit card debt, medical costs, utility bills, payday loans, or personal loans. The procedure will be finished in a few months, allowing you to start restoring your credit swiftly.
You will have little to no debt left when your Chapter 7 is discharged, and creditors could believe that you will be better able to pay back your loans in the future.
A few months after filing for Chapter 7 bankruptcy, many individuals finance cars and are contacted for unsecured credit. In addition, two years after receiving your bankruptcy discharge, you can be qualified to buy a house.
To find out if Chapter 7 is right for you, it’s best to consult with top credit repair companies because you may not need bankruptcy. It is crucial to study the information and discuss options with lawyers.
What Exactly is Chapter 13?
A consumer debt restructuring plan known as Chapter 13 allows debtors to settle their commitments over three to five years with one affordable monthly payment.
The Chapter 13 bankruptcy option might help you regain control over your finances from creditors repossessing your car or foreclosing on your house.
Through a court-approved repayment plan that you can afford, Chapter 13 enables you to pay back a part of your debt. The remaining qualified debt is discharged after the repayment plan has been satisfactorily completed.
You will also be freed from creditors’ teasing since they must suspend all collection efforts throughout the payback period.
For homeowners who want to maintain their secured assets but have more equity than they can protect with their Ohio bankruptcy exemptions, or those whose income is too high to qualify for a Chapter 7 bankruptcy, Chapter 13 bankruptcy is sometimes the best option.
You must have a consistent source of income and some extra money to put toward your Chapter 13 payment plan to file for Chapter 13 bankruptcy.
Bankruptcy Non-Dischargeable Debt
The objective of both Chapter 7 and Chapter 13 bankruptcy is to get a “discharge” of debts. If the bankruptcy court discharges these commitments, you will not be held personally liable as long as you file for bankruptcy.
Most consumer debts can be forgiven, including credit card and medical debt. However, certain debts cannot be dismissed in bankruptcy because they are not dischargeable.
These are debts that Congress has decided should not be forgiven by national policy.
The following are the 11 categories of non-dischargeable debt. In other words, even if you get a discharge of your consumer debts, creditors will still be able to collect these kinds of debts.
Others will be discharged if a creditor does not object to their capacity to be discharged. Some non-dischargeable debts do not need a hearing.
You must provide evidence of unusual circumstances to have non-dischargeable debts forgiven.
More than 1.4 million individuals filed for bankruptcy in 2011, significantly less than in 2010 (more than 1.5 million). This may mean that some Americans did not approve of forgiveness, and some found an alternative.
Number of individuals and companies to declare bankruptcy in the United States in 2010 and 2011
To continue to be non-dischargeable, further non-dischargeable debt categories must be successfully disputed by a creditor throughout the bankruptcy. At the court hearing, the bankruptcy filer and the creditor will have a chance to speak.
Nevertheless, the obligation will be terminated if the creditor doesn’t object or the court rejects their argument.
These debts fall into three categories: those acquired dishonestly or under pretenses; those incurred as a result of intentional and malicious harm to people or property; and debts incurred from luxury credit card purchases totaling more than $650 that were made within 90 days of filing for bankruptcy and are owed to a single creditor.
Debts That are Generally Non-Dischargeable
- Debts that were omitted from the bankruptcy petition unless the creditor was informed of the filing
- Several tax kinds
- Alimony or child support
- Debts from a divorce or separation that are owed to a kid or an ex-spouse
- Penalties or fines owing to government organizations
- Education loans
- Debts for personal injuries caused by a drunk driving accident
- Debts associated with tax-favored retirement plans
- Bills from a condo or cooperative housing fees
- Legal costs associated with child support or custody
- Criminal restitution, as well as further court fines or sanctions
Alternatives to Bankruptcy for Debt Relief
Bankruptcy has detrimental effects. You’ll have to wait ten years for the effects of a Chapter 7 bankruptcy to fade from your credit records and seven years for those of a Chapter 13 bankruptcy.
This might make it more expensive or perhaps impossible to get a credit card or borrow money in the future for things like a mortgage or auto loan. It may also impact the cost of your insurance.
It is important to research other debt-relief alternatives before filing for bankruptcy. Negotiating with your creditors to reduce your interest rates, get a part of your debt forgiven, or extend the time you have to pay it off is often the first step in debt relief.
Since they stand to earn more from the deal than they would if you filed for bankruptcy, creditors usually profit from debt reduction.
Bottom Line
You may use bankruptcy to get rid of debt for credit cards, medical bills, and collection calls.
Even the best-executed bankruptcy petition won’t always be enough to completely discharge your debts, including student loans and child support obligations.
A lawyer can explain the extent of the amount of discharged debt you will have.
They will describe the different types of debts and which ones a Chapter 7 file would not be able to discharge. You’ll also get advice on how to handle these debts from your lawyer.
