WHICH DEBTS ARE DISCHARGED IN A CHAPTER 7 BANKRUPTCY?

The goal of aChapter 7 bankruptcy is to relieve the debtor from the burden of debts he cannot afford to pay and provide a fresh financial start.  This goal is achieved through the Chapter 7 bankruptcy discharge.  The Chapter 7 discharge is a court-ordered permanent injunction that prohibits discharged creditors from taking any collection action against the debtor.  While the discharge order is very broad, certain debts are excluded from the discharge order. 

Below are debts that are commonly included in a Chapter 7 bankruptcy discharge:

• Credit cards
• Medical bills
• Unsecured personal loans
• Secured loans on property that is "surrendered" in the bankruptcy
• Old utility bills (and back-owed amounts on current utility service)
• Certain income tax debts that are more than three years old
• Payday loans

Below are debts that are commonly excluded from a Chapter 7 bankruptcy discharge:

• Recent income tax debts
• Domestic support obligations (child support and alimony)
• Student loans
• Government fines or criminal restitution
• Any debt resulting from an intentional injury
• Any debt resulting from a DWI
• Any debt incurred by fraud

Debts that are excluded from the bankruptcy discharge will survive the bankruptcy and, once the bankruptcy is over, the creditor may take any legal action against the debtor to collect the debt.  For this reason, it may be beneficial for some debtors to file Chapter 13 and use the power of the automatic stay during the pendency of the bankruptcy case to pay a non-dischargeable debt, especially in cases involving income tax debt or child support arrearage. 

If you have bills you cannot pay, speak to an experienced attorney and discuss your options under the federal bankruptcy laws.  A Chapter 7 bankruptcy discharge can provide peace of mind and start you on a path for financial recovery.