What Debts Can Be Discharged Through a Chapter 7 Bankruptcy Filing?

If you are struggling to pay your bills, you may be considering bankruptcy as a way to get a fresh financial start.. There are limits, however, on what debts may be discharged in a Chapter 7 or Chapter 13 filing. You want to know what debts you can and cannot rid yourself of in Chapter 7 or Chapter 13, so that you get the outcome you need and want. This blog provides an overview of the types of debts that can and cannot be discharged in a Chapter 7 or Chapter 13 bankruptcy filing.

As a general rule, you cannot discharge secured debt and still keep the property. Secured debt means home mortgages, car loans and other debts secured by collateral.

The other kinds of debt that are generally excluded from discharge are:

  • Child support and alimony obligations—These obligations can never be discharged.
  • Tax obligations—There are limited instances where a tax debt can be eliminated in a Chapter 7 bankruptcy. The tax debt must be at least three years old, the tax return must have been filed at least two years ago, any assessments by the tax authority must have been made more than 240 days ago, and you must not have committed tax evasion or tax fraud.
  • Student loan payments—In rare situations, where a debtor has shown extreme hardship, the bankruptcy court has allowed the discharge of student loan payments. As a general rule, though, they cannot be extinguished in bankruptcy.
  • Equitable Distribution from a Divorce – If you owe money to a former spouse as equitable distribution (as opposed to child support or alimony) arising from a divorce, you cannot discharge this debt in a Chapter 7. However, this kind of debt can be discharged in a Chapter 13!

Even though you may not be able to discharge all of your debts by filing for bankruptcy, filing for bankruptcy can often by a smart financial decision. By wiping out your credit card, medical bills, and personal loan debts you will free up

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Can You Prevent the Loss of Your Home or Car by Filing for Bankruptcy Protection?

If you have fallen behind on your mortgage or car payments because of the loss of your job, medical expenses, a divorce, or for any other reason, you may live in daily fear that you will lose your home or your vehicle. You may have considered filing for bankruptcy, but heard conflicting stories about whether or not you can protect real property or a car through a bankruptcy petition. Here’s what you need to know.

The Automatic Stay Provided by the Bankruptcy Laws

When you file for bankruptcy, an automatic stay immediately goes into effect, suspending all legal action related to any debt that is part of the bankruptcy. This means that your creditors cannot call or write you in an effort to collect on a debt. It also means that they cannot initiate or continue any legal action (outside of the bankruptcy proceeding) and that all legal efforts to collect from you, or to foreclose on or repossess your property must immediately stop. In order to take advantage of the automatic stay, however, you must file for bankruptcy protection before the foreclosure sale, or before your vehicle has been repossessed. It may be possible, with respect to a car, to get the vehicle back if you file for bankruptcy after it has been repossessed, but before it has been sold at an auction.

Discharge vs. Reorganization of Your Debts

Some creditors, such as credit card creditors and medical creditors, are unsecured creditors. This means that there is no specific piece of property that their debts are attached to. On the other hand, some creditors are secured creditors. The most common secured creditors are automobile lenders, who hold a lien on the car, and mortgage companies, who hold a mortgage on a home. Both Chapter 7 and Chapter 13 bankruptcy let you discharge most of your debts. However, if you want to keep the property which is subject to a secured creditor’s lien or mortgage, you need to keep paying that secured creditor.

A Chapter 13 bankruptcy provides a unique opportunity to have your unsecured debts discharged and to restructure your secured debts. While it is typically not feasible to change the terms of mortgage loans in a Chapter 13 bankruptcy without the cooperation of the lender, it is often times possible to change the terms of car loans. For example, in a Chapter 13 bankruptcy many individuals are able to reduce the total amount they need to pay to their auto lender by lowering the effective principal balance owed and interest rate to be paid to the auto lender. In addition, these payments can be stretched out over 5 years, so if you have a car payment that is too high, but only two years left on payments, then you can lower your monthly payment so that it is instead paid out over 5 years.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-759-6022 (toll free at 866-662-3191).