One of the main reasons why people file for bankruptcy (either Chapter 7 or 13) is to obtain a discharge of their debts. A bankruptcy discharge releases a debtor from personal financial liability for certain debts. This means that a debtor no longer owes these debts, is not obligated to repay these debts, and the creditor cannot attempt to collect from the debtor on these debts, ever.
The discharge helps you obtain a “fresh start,” a “clean slate.” It’s your do-over, your reset button.
So, what types of debts are discharged?
Bankruptcy discharges unsecured debt. These are your medical bills, your standard credit cards, personal loans, and check advances, old electric or phone bills, and the like. Provided you did not run up your credit cards or take out personal loans right before you file, your unsecured debts should be dischargeable.
Unsecured debt also includes the deficiencies that result when a mortgage company forecloses on a house you surrender or the car that you give back to the financing company. That’s one reason why bankruptcy can be so appealing – you will not owe anything on the house or car that you give back to the creditor.
What types of debts are not discharged? Here’s a brief rundown of the most common:
- Secured debts will not be discharged. If you want to keep your house, car, or something similar, you will have to pay for it.
- Income taxes, unless certain narrow requirements are met, will not be discharged.
- Student loans – next to impossible to discharge
- Domestic support (alimony and child support)
- Debts not listed on the petition
- Debts for money obtained by lying or fraud
- Debts for willful or malicious injury to another person or their property
- Debts for death or personal injury cased by debtor’s operating a motor vehicle while intoxicated
Of course this is an overview, a generalization, and you should speak to a bankruptcy attorney (and if you are in middle Tennessee, give me a call) about your particular financial situation to learn more about discharging debt in a bankruptcy.