For most people, the major purpose of filing for bankruptcy, especially under Chapter 7, is to completely wipe out or discharge the debts. Since most debts are dischargeable, it allows debtors to breathe easier knowing that they are no longer obligated to pay their debts to creditors. Though there are many categories of dischargeable debt, the most common are personal loans, credit card loans, medical bills as well as utility bills.
How does a discharged debt work?
As you have read earlier, discharged debts are considered wiped out or totally eliminated from a debtor’s responsibility. Meaning to say, creditors no longer have a legal hold on debtors to pay their debts that are already discharged.
But though a debtor is no longer liable to pay their discharged debts, a valid and unavoidable lien might still remain and can be enforced to recover any property secured by such. In most cases, debt discharges are granted at the end of the case especially with filers under the Chapter 7 bankruptcy.
Which are dischargeable debts?
Though it is true that not all debts are dischargeable, most of your debts can be easily discharged under the Chapter 7 bankruptcy. Just remember that you can be discharged of debts you made before filing the petition but not the debts you acquire after filing the petition for bankruptcy. To know which debts are dischargeable and which debts are not, all you have to do is look at the Bankruptcy Code. The Code lists 19 categories of debts that are non-dischargeable and anything that doesn’t fall within the category can be considered as dischargeable.
Aside from personal loans, credit card debts, medical bills, and utility bills, tax liability on discharged debts is also possible. Here are some more of the most common dischargeable debts eligible under the Chapter 7 bankruptcy:
- Dishonored checks with the exceptions of fraud-based checks;
- Student loans;
- Business loans
- Deficiency balances from repossession;
- Owed money from lease agreements;
- Overpayments on social security;
- Legal fees for bankruptcy lawyers except for alimony and child support;
- Accounts for revolving charges with the exception of extended payment charges;
- Veterans assistance loans;
Chapter 7 dischargeable debts vs. Chapter 13 dischargeable debts
With a discharge debt, you can easily escape your responsibility to your creditors without the need of repaying them. However, dischargeable debts are treated differently depending on whether or not you are filing under the Chapter 7 or Chapter 13 bankruptcy.
Under the Chapter 7 bankruptcy, there is nothing else for the trustee to sell so that they can pay your creditors. In short, bankruptcy cases under this chapter are for people who have no assets. But while your personal loans are completely discharge, your property liens such as your mortgage still has to be paid or the bank might foreclose or repossess your property.
On the other hand, dischargeable debts under the Chapter 13 bankruptcy are treated as non-priority general unsecured claims. To put it simply, the bankruptcy trustee will consider you income and assets as well as your expenses and though you have too little or nothing at all to go through your monthly repayment plan, your debts will eventually be discharged upon completing the payments as agreed to your monthly plan.