What Debt is Discharged with Bankruptcy and What is Not

Posted by Daria King on December 12th, 2019

There are a lot of misconceptions that people hold regarding what bankruptcy is and is not. Understanding what it can and cannot do is key, specifically as it pertains to the type of debt that someone hiring a bankruptcy lawyer in Mattoon, IL, can expect relief from. Here is a rundown of the type of debt bankruptcy will forgive – and the type of debt it will not.

Type of Bankruptcy

Most people file for Chapter 7 or Chapter 11 bankruptcy. Each does different things, has different requirements and cancels different types of debt.  After reviewing a potential bankruptcy filer’s debt and assets, a bankruptcy lawyer will recommend the type of bankruptcy that best fits the situation.

Credit Card and Nonpriority, Unsecured Debt

If you have a lot of credit card, or other unsecured debt (meaning you did not promise to return property if you cannot pay for it,) bankruptcy can wipe out most if not all of that. Unsecured debt includes, but is not limited to medical bills, utility payments, food, personal loans, etc.

Secured Debt

With secured debt, you are expected to return the item or items you cannot afford. If you do not return it, repossession might occur. These include vehicles, houses, boats, jewelry, etc. Secured debt is not wiped out by bankruptcy but in some cases, your low-cost bankruptcy lawyers can negotiate a deal to allow you to wipe out the debt in exchange for returning the items in question.

Child Support / Alimony

These types of obligations remain unchanged through either type of bankruptcy. With Chapter 13, your payment in full will likely be included as part of your repayment plan.

Student Loans

The only way you can have student loans discharged is if you can prove “undue hardship” would be cause by your repayment. That is a terrifically tough threshold to prove. You have to show that you cannot now, nor in the future repay the debt and that doing so will cause material hardship to you. 

Taxes

These can be eliminated in some unique cases, but not in most.

Nondischargeable Debt

These include debts you neglect to list in your bankruptcy filing, debt for personal injury or death due to intoxicated driving, criminal and civil penalties or fines. Other types of debt that are nondischargeable is that which is the result of criminal actions, such as fraud.

After reviewing your case, your bankruptcy lawyer in Mattoon, IL, will recommend the type of bankruptcy you should file for if filing for bankruptcy is the proper choice. What they recommend will impact the type of debt that will be forgiven; understanding how that works can make decisions easier.