Which Debts Are Ineligible to Be Discharged in Bankruptcy?

Posted on: 11 May 2021

If you meet with a bankruptcy attorney to learn about solutions for managing a significant amount of debt, the attorney may recommend that you file for Chapter 7 or Chapter 13 bankruptcy. The difference between these two types is largely based on your income and how many of your assets you want to try keeping. One thing both types of bankruptcy have in common is that they only tackle certain types of debt, so it's important to know which of your debts won't be completely wiped out at the end of the process.

How Does the Bankruptcy Process Work?

If you file for Chapter 7 bankruptcy, you'll get to keep a few basic assets like the car you use to get to work, but the majority of your belongings could be sold to pay off as much of your debt as possible, and then the rest of your eligible debts can be forgiven. With Chapter 13, you get to keep more of your assets because your attorney will help you come up with a payment plan to pay off as much of those debts as you can in three to five years. At the end of that time period, the rest of your eligible debts will be discharged.

Getting debts discharged at the end of the bankruptcy process can give you a fresh financial start, but it only applies to certain types of debt. It's important to ask your attorney about which of your debts will still remain after bankruptcy.

Eligible vs. Ineligible Debt

The majority of debts eligible for bankruptcy are consumer debts. This includes car loans, credit cards, medical bills, and other debt that you spent money to accrue. When you successfully complete the bankruptcy process, creditors can no longer come after you for these consumer debts.

Debts that are ineligible are typically those that you owe to the government or those that you owe as a result of a court order. The most common examples include:

  • Tax liens and most types of federal and state taxes
  • Spousal support and child support
  • Debts you owe as a result of a personal injury lawsuit or DUI

Some debts are not ineligible but are still very difficult to get discharged, such as student loans and some taxes. You may want to ask your bankruptcy attorney whether you qualify to have these debts discharged.

Looking on the Bright Side

Even if you have some debts that won't get discharged at the end of the bankruptcy, filing for Chapter 7 or Chapter 13 can still have a positive effect on your overall financial picture. If you get the majority of your debts forgiven, that leaves more room in your monthly budget to pay down other types of debt. A bankruptcy attorney can go over some of the other benefits with you and help you get a fresh financial start.

To learn more, contact a law firm, such as Martinez Law Firm.