Filing bankruptcy can be a difficult thing to handle, but especially if you are not well-versed in bankruptcy. For example, you may not be fully aware of what debts can be erased through chapter 7 bankruptcy, which makes the process all the more difficult and stressful. But thankfully, this is not something that you are going to go through with alone. Today, we will be covering the kinds of debts that can be erased through filing chapter 7 bankruptcy, and the circumstances that allow you to erase them.
Understanding the debts which can be erased through chapter 7 bankruptcy
Not all debts are erased
Despite what someone may have told you, bankruptcy is not a process that sees every single debt wiped out. While it will help you with a fair few debts, but it will not clear out every single debt. You should also remember that chapter 7 bankruptcy and chapter 13 bankruptcy do not cover the same things or work the same way.
Credit card debt
A chapter 7 bankruptcy filing does so much to help you get a fresh start with your life, and it does this through helping you wipe out your debts. Credit card debt is a common problem that many face, though thankfully, it is something that can be cleared out. However, while in most circumstances you do not have to worry about a dispute, disputes are still possible. For example, a credit card company or bank may argue that the debt should not be cleared.
One argument that they may make in support of this is that you provided false information on your credit report, which may wind up canceling out the debt clearance if it is found to be true. A good way to keep this from happening is to stop using your credit cards altogether. This may have a negative impact on your credit score for the short-term, but in the long-term, it is better to deal with that than it is to deal with an objection to your discharge attempt.
Better yet, by filing chapter 7 bankruptcy and clearing out your credit card debt, this creates an obligation for creditors that they cease contact in order to obtain the money you once owed. This is a huge boon, as on top of not having to worry about clearing out that debt, you can now finally be free of the incessant and often harassing phone calls from these creditors. If they do continue harassing you despite having gone through the process, that is something that you could pursue legal action to stop.
In the event that you have been encumbered by medical debts, chapter 7 bankruptcy is a solution that can be used to discharge them. Medical debts can be rather destructive, so being able to not have them looming over your head is a relief and a half. Heck, there are people who would have otherwise had their lives ruined by crippling debts, relating to things such as cancer treatment. Not only that, but judgments relating to medical debts (as well as credit card debts) can be discharged after filing chapter 7 bankruptcy. Deficiency balances are covered through chapter 7 bankruptcy, and even personal loans are covered through the process.
Phone & utility bills
Certain bills that you are struggling to pay off, such as utility bills, phone bills, are also covered under chapter 7 bankruptcy. Do try to make sure that you work on changing these habits after having filed, however, as it will not reflect well if you fail to improve your financial habits. Granted, not every person struggling with paying their bills does so because of bad habits, but because of financial struggles that occurred as a result of bad luck.
Car loans are often discharged through a chapter 7 bankruptcy filing, although an issue is that you do not get to keep the car if you are not staying current on your car loan payments. There is a process for car loan debt called a reaffirmation agreement, which would prevent reaffirmed debt and deficiency from being discharged.
If you have secured debt for your automobile or other personal property, you are required to enter into a reaffirmation agreement. If you feel that you can pay off this debt, then it may be a good idea to enter into it. If the value of selling your vehicle is worth more than paying back the debt, consider doing that. If the vehicle is in poor condition, entering into a reaffirmation agreement may be a bad idea since you’ll have to spend more money to maintain it.
There are some debts, however, that can only sometimes, but not always, be discharged. Tax debts more recent than three years old, for instance, cannot be discharged, but older ones can. Student loan debts are also typically not dischargeable, although if you can make a compelling enough case that not doing so would make it incredibly difficult for the chapter 7 bankruptcy filing to be effective, they have the ability to make an exception in your case.
Chapter 13 or 7 Bankruptcy – which is better?
There are some instances where going with a chapter 13 bankruptcy filing would be preferable to a chapter 7 filing, such as issues relating to a divorce proceeding. There are other advantages and disadvantages to both, so be sure to consult with a chapter 7 bankruptcy lawyer who can better educate you about the pros and cons. Don’t go into this kind of thing half-cocked.
Interesting related article: “What is a Creditor?“