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Filing for bankruptcy does not necessarily result in every debt being discharged. Depending on the type of bankruptcy being filed, and the types of debts an individual has, some debts may remain even after a bankruptcy is completed. In this article, we further explain what individuals considering two of the most common types of bankruptcy — Chapter 7 and Chapter 13 — need to be aware of when it comes to discharged debt after one of these types of bankruptcy is filed.
What is a Discharge?
A discharge is when debts or other obligations are “erased” by a court order. This means that the person who owed the debt no longer needs to make a payment and the creditor cannot take any actions to collect the debt. Just because someone files for bankruptcy does not mean all their debts are discharged. The type of bankruptcy you file will determine which debts qualify for a discharge.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, the following debts can usually be discharged:
- Medical bills;
- Utility bills (if there are past due amounts - see additional notes below);
- Bounced checks;
- Credit card charges (including late fees);
- Personal loans;
- Repossession deficiency balances;
- Business debts, including guaranties of loans;
- Automobile accident claims (but not drunk driving);
- Older taxes as long as a return was filed; and,
- Overpayments of government benefits (except fraud).
Utility Bills
Regarding utility bills, a provider is not allowed to stop providing service because a customer filed for bankruptcy. However, if the debtor is discharging utility company bills in their bankruptcy, the Bankruptcy Code gives them twenty (20) days to put down a deposit or the utility company can discontinue service.
Pre-Filing vs. Post-Filing Debt
Just because one of the above-listed types of debts is eligible for a discharge does not necessarily mean it will be discharged. Under Chapter 7 bankruptcy, the timing of when the debt is incurred is critical to whether it qualifies to be discharged.
Pre-filing debt is the debt that accrued prior to filing for bankruptcy. Post-filing debts are the bills or debt accrued after filing for bankruptcy. In most cases, only pre-filing debt is eligible to be discharged during a Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy cases have similarities and differences to Chapter 7 bankruptcy cases. The key difference between a Chapter 7 and a Chapter 13 bankruptcy is that in a Chapter 7 case most of the debts are discharged completely without payment to creditors by the debtor, while in Chapter 13, a payment plan is proposed in order to allow the party filing to retain certain assets which would likely be lost if Chapter 7 had been filed.
Secured Debt
This is a debt that is secured by some type of collateral. That means that if the obligation to pay back the debt is not met, the collateral (like a house or car) can be foreclosed upon.
Priority Unsecured Debt
These are debts that will not be discharged in Chapter 7 or 13 bankruptcy. These include:
- Recent taxes;
- Student loans; and,
- Domestic support obligations (alimony and child support).
Debts Discharged in Chapter 13 but Not Chapter 7
When it comes to debts discharged, the following can often be discharged in Chapter 13 but not Chapter 7 bankruptcy:
- Loans or other debts incurred to pay non-dischargeable taxes;
- Non-support debts from a separation or divorce property settlement, such as an equalization payment;
- Homeowners’ association dues;
- Non-criminal government penalties and fines;
- Debts for malicious or purposeful property damage; and,
- Past debts related to a previous bankruptcy case.
Which Bankruptcy Chapter is the Best for You?
Considering filing for bankruptcy? This is a decision that is not made lightly and for good reason. Bankruptcy cases are complex and the outcomes can be felt for a long period of time.
When working with Weintraub Zolkin Talerico & Selth, we can let you know if bankruptcy is the best solution for your situation. Everyone’s circumstances are different and you shouldn’t decide to file for bankruptcy without exploring all options.
Contact the team at Weintraub Zolkin Talerico & Selth today so you can experience true debt relief.