When a debt is described as “dischargeable,” it means that it can be erased through the bankruptcy process. Upon the successful completion of a bankruptcy case, the bankruptcy court typically issues a discharge order, which legally removes your obligation to pay any dischargeable debts.
Different Types of Dischargeable Debt
Most common types of dischargeable debts in a bankruptcy case include:
- Credit Card Debts: This includes outstanding balances on Visa, Mastercard, American Express, and other credit card accounts.
- Medical Bills: High medical expenses, a common cause of bankruptcy, are also dischargeable.
- Personal Loans: Unsecured personal loans from banks, family, friends, or employers can often be discharged.
- Utility Bills: Overdue bills for electricity, gas, or water services up to the time you file for bankruptcy can be erased.
- Past-Due Rent: If you’ve moved out, any rent you owed up until the time you filed for bankruptcy could be discharged.
- Certain Tax Debts: Sometimes, income taxes that are several years old can be dischargeable under specific conditions.
Non-Dischargeable Debts
It’s equally important to understand which debts are not typically discharged in a bankruptcy. Examples of non-dischargeable debts include:
- Student Loans: Except in rare circumstances of undue hardship.
- Alimony and Child Support: Obligations due to family support are generally not dischargeable.
- Recent Taxes: Taxes from the last three years, as well as other types of taxes like payroll taxes or fraud penalties.
- Fines or Penalties Owed to Government Agencies: This can include traffic tickets and criminal restitution.
The Bankruptcy Chapters and Dischargeable Debts
Different bankruptcy chapters treat dischargeable debts in varied ways:
- Chapter 7 Bankruptcy: Often referred to as liquidation bankruptcy, Chapter 7 allows for the discharge of many types of debts; however, certain assets may be sold off to pay creditors.
- Chapter 13 Bankruptcy: This is a reorganization bankruptcy. It doesn’t completely discharge debts immediately but restructures them into a manageable payment plan over 3 to 5 years. After the payment plan is successfully completed, remaining dischargeable debts are typically wiped out.
Getting a Fresh Start
The ultimate goal of bankruptcy is to give individuals a fresh financial start by discharging debts they cannot afford to pay. If you’re overwhelmed by debt, understanding which debts can be discharged will help you evaluate whether bankruptcy is a viable option. Speak to a bankruptcy attorney to help you understand the process.
Conclusion
Bankruptcy can offer significant relief if you’re sinking under the weight of financial obligations. However, it’s important to understand that not all debts can disappear. By familiarizing yourself with the nuances of dischargeable debts, you’ll be better prepared to navigate the complexities of bankruptcy proceedings.
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