Make sure you understand how bankruptcy will affect your future.
Chapter 7 bankruptcy is intended to serve as a financial reset, and it works very well for most people struggling with credit card debt, personal loans, medical debt, and other types of unsecured debt. However, some types of debt — most infamously, student loans — are difficult to eliminate in bankruptcy. If you have those types of debt, that doesn't necessarily mean you shouldn't file Chapter 7, but it does make the decision to file a bit more complicated, so it's important to know where you stand.
Remember, this is general information, not legal advice. Only a bankruptcy lawyer can tell you which of your debts will be dischargeable in Chapter 7. If you're unsure how bankruptcy interacts with your individual mix of debts, contact us to talk to an attorney.
Types of debt that generally aren't discharged in Chapter 7
The Bankruptcy Code specifies several types of debts that are generally not covered by Chapter 7. These debts include:
- Domestic support obligations (e.g., child support or alimony)
- Student loans
- Most types of tax debt
- Most types of fines, penalties, forfeitures, and criminal restitution
- Some types of loans owed to pension, profit-sharing, stock bonus, or retirement plans
- Debts for personal injury or wrongful death caused by operating a vehicle while intoxicated (drunk driving)
In addition, the bankruptcy court can order that certain debts should not be forgiven, even if they otherwise would — usually because of fraud or presumptive fraud. Debts that are unlisted or improperly listed on your bankruptcy filing may also not be discharged.
Finally, any debts that you acquired after you filed (and sometimes certain types of debts you acquired in the 70 to 90 days before you filed) won't be covered by bankruptcy.
You can also choose not to have certain debts discharged.
The bankruptcy system allows you to file a "reaffirmation agreement" to keep paying a debt even though it could be discharged in bankruptcy.
The most common reason debtors do this is to deal with secured debt, that is, debt that is tied to a particular piece of property, like a house or a car. You can discharge secured debts in Chapter 7 bankruptcy, but you have to give up the associated property in order to do so — for instance, if you get an auto loan discharged, that also means you lose the car financed by the loan. If you really need to keep that car, you have the option of reaffirming the auto loan. Reaffirmation agreements can also be used if you have a joint debt and you don't want your co-debtor to get stuck with the whole debt.
However, this isn't a decision to take lightly since reaffirming a debt can make it much harder to rebuild your finances after bankruptcy. Always talk to an experienced bankruptcy attorney first.
What are your options if you have debts that can't be discharged in bankruptcy?
For certain types of debts, it is sometimes possible to get a discharge by filing an "adversary proceeding" or AP — a separate lawsuit filed in the bankruptcy court to challenge whether a particular debt is dischargeable. For example, it's sometimes possible to get student loans or certain types of liens discharged this way if you meet specific legal criteria. (Your creditors can also use this same process to argue that one of your debts should not be discharged.)
Certain types of debt generally can't be discharged in Chapter 7 but can be discharged in Chapter 13 bankruptcy. Filing Chapter 13 comes with other pros and cons; whether you can discharge certain debts is only one factor to consider.
Ultimately, you must consider your whole financial situation when deciding whether Chapter 7 bankruptcy is right for you. Remember that discharging some of your debts will leave you with more income available to pay off your non-dischargeable debts. So even if you can't get all your debts discharged, it may still be in your interest to file.
An experienced bankruptcy attorney can help.
Ultimately, only an attorney can tell you whether Chapter 7 bankruptcy makes sense in your individual situation. If you're dealing with overwhelming debt, talk to a lawyer at Benjamin R. Matthews & Associates, LLC about your options. The case evaluation is free, and there's no obligation, just answers about your legal rights and options as a debtor.