What Debts are Discharged in Chapter 7 Bankruptcy?

If you are drowning in debt and unable to catch up, you may be considering filing bankruptcy. Chapter 7 bankruptcy is also sometimes called a liquidation bankruptcy. This type of bankruptcy can provide you with a clean slate, and it may allow the discharge of some of your debts. It is helpful to understand what debts are discharged in a Chapter 7 bankruptcy.

What Does Debt Discharge Mean?

You likely have a number of debts, such as loans, credit cards, mortgages, medical bills, and more. Debt discharge means that the lender agrees to end your debt without further payment. In other words, if a debt is discharged, it means you will no longer be responsible for repaying the debt. Not all debts can be discharged in Chapter 7 bankruptcy. Some types of debt are routinely discharged. When you are deciding to file bankruptcy, you will need to understand which of your debts will and will not be subject to discharge.

Secured and Unsecured Debt

Debt is broadly categorized into two main types, including secured and unsecured debt. Secured debt is debt that is secured through collateral. If you default on a secured debt, the lender may seek to obtain the collateral in order to repay what you owe. A mortgage is one of the most common types of secured debt. If you fail to repay the loan, the bank may repossess your home in order to obtain payment.

Unsecured debt is debt that is not secured by collateral. These types of debts often have a higher interest rate because they are more of a risk to the lender. Some examples of unsecured debts are credit cards and medical bills. When you obtain a credit card, for instance, you do not use any of your property as collateral.

Debts That are Discharged in Bankruptcy

Some types of debt can be discharged, while others are never discharged. In general, credit card debt, medical bills, lawsuit judgments, and personal loans may be discharged. In Chapter 7 bankruptcy, the court-appointed trustee will sell your nonexempt assets and use the proceeds to repay your creditors.

However, in many instances, the proceeds from the sale of your property may not be enough to repay all of your debts. In these cases, the creditor typically accepts what payment is possible and discharges the remainder of the balance. This often occurs in credit card debt and other unsecured debt, except in cases involving fraud or luxury purchases that were made close to the time of filing bankruptcy.

Debts That Cannot Be Discharged

Some types of debts are not dischargeable. This means that you will still be responsible for repayment, even after bankruptcy. Some debts that are not dischargeable include child support and spousal support obligations, fines and restitution imposed as punishment by a court, some tax debts, and student loans. However, there are some exceptions that may allow a debt to be dischargeable. An experienced bankruptcy attorney will help you sort out your debts and assist in determining which obligations may be dischargeable.

To learn more about bankruptcy, contact our legal team at Adam Law Group at (904) 467-4773 to discuss your case.