5 Most Common Debts that Can Be Discharged in Bankruptcy

Chapter 7 can eliminate five common debts easily

For those that are in financial distress and considering bankruptcy, you may be wondering which debts will be discharged after a Chapter 7. The good news is that most debts can be relieved in bankruptcy. Some are question marks such as student loans – but even these can be relieved under certain circumstances and with the filing of an additional procedure called an adversary proceeding.

Here’s a list of those debts that are typically no problem to extinguish:

#1 Credit Card Debt So long as you didn’t run up your credit card debt with the intention of filing bankruptcy (this would be considered fraud), it can be discharged automatically. Credit card debt averages $15,000 per household and can result in hundreds of dollars in payments per month. Having this debt discharged in Chapter 7 can make a huge difference in your monthly disposable income.

#2 Personal Loans Any unsecured loan (except student loans) is usually easily dischargeable in a Chapter 7 bankruptcy. This would cover signature loans, payday loans and any other financing arrangement where no property is used to secure the debt. Again, unless the loan was taken out just prior to bankruptcy (which could indicate fraud) it will usually be relieved in the bankruptcy process.

Medical bills can automatically be relieved in bankruptcy no matter how large

#3 Medical Bills If you don’t have insurance or were underinsured and had a major accident or illness, you may find yourself saddled with tens or even hundreds of thousands of dollars of medical expenses. Chapter 7 can easily discharge these debts and get you a financial fresh start. If you are a parent and your minor child falls ill, these medical bills are also your responsibility and so are dischargeable.

#4 Income Taxes If you properly filed your income tax returns (and filed them on time) but couldn’t pay the balances owed, often the backlog can be discharged in a Chapter 7 bankruptcy. For income tax returns that were never filed, bankruptcy won’t help. Tax balances typically must be outstanding for at least three years prior to filing bankruptcy for them to be eligible for discharge.

#5 Secured Debts While nearly all unsecured debts are dischargeable in Chapter 7, what you may not know is that secured debts such as mortgages and auto loans are also eligible for relief. The catch is that you can’t keep the property. But if the asset is worth far less than you owe, giving up the house or the vehicle won’t be a big loss. If you surrender your home or auto as part of a bankruptcy, the full amount of the loan will be relieved and you can walk away from the Chapter 7 with very few (or no) debts remaining at all!

If you are overwhelmed in debt and want to know what relief a Chapter 7 bankruptcy might provide for your specific circumstances, contact the law offices of John T Orcutt for a free consultation on North Carolina bankruptcy.