What Debts Can I Get Rid Of?

The discharge is your objective in bankruptcy.  The discharge means that the debts included in your bankruptcy cannot be collected from you ever again.  The discharge is a little different in chapter 7 and chapter 13.  Most debts are dischargeable in chapter 7; but, some people may get more benefit from a chapter 13.  Additionally, the rules are a little different for debts like car loans and mortgages.

Chapter 7 Discharge

In most cases, the chapter 7 discharge is enough to get rid of all of your debts.  Some of the debts discharged in chapter 7 are:

  • Credit Card Debts
  • Medical Debts
  • Personal Loans
  • Payday Loans
  • Signature Loans
  • Loan Deficiencies for foreclosures or car repossessions
  • Lawsuits
  • Personal Income Tax, if the return was due at least 3 years ago and you actually filed the return at least 240 days before filing chapter 7.
  • Restore your driver’s license if you were are an underinsured motorist or you have traffic tickets more than 3 years old.

Chapter 13 Discharge

Chapter 13 bankruptcy discharges all of the same debts as a chapter 7, and it covers some of the debts that you can’t discharge in a chapter 7.

  • Taxes that can’t be discharged in chapter 7 can be paid off through a chapter 13 plan.  A chapter 13 plan lets you pay non-dischargeable back taxes first and still discharge your other debts.
  • If you have traffic tickets that are less than 3 years old, they can be discharged and you can get your license back.
  • If your house is completely underwater on the first mortgage, then you can discharge the second mortgage.

Secured Debts

A secured debt is something where a creditor has a lien on your property, for instance a mortgage or a car loan.  In bankruptcy, the debt is discharged.  But, you still have to make payments to the secured creditor if you want to keep the property.  This is because a secured debt actually has two parts: 1) the debt, and 2) the lien.  A lien is a property right that cannot be discharged in bankruptcy.  So if you file bankruptcy and want to keep your car, you have to keep making payments.

There are a few cases where this is not true.  If you file a chapter 13 bankruptcy, you may be able to do a cramdown or a strip off.