Bankruptcy can be helpful in many ways, and one of those is to erase some or all of a consumer’s debt. Bankruptcy is most often used to wipe out unsecured debts, such as medical bills, personal loans, past due utility bills, business debts, charge accounts, collection agency debts, and late fees. However, there are certain debts that can survive bankruptcy, meaning that you will continue to owe the creditor until you pay in full.
Your Bankruptcy Determines Which Debts Will Be Discharged
The difference between Chapter 13 and Chapter 7 bankruptcy is that Chapter 13 requires the consumer to pay back a portion of unsecured debt. In exchange, any unsecured debts that remain after the repayment plan is complete will be forgiven. Beyond these types of bills, bankruptcy may be used to discharge many other kinds of debt, including:
- Credit card debts. The most common type of debt eliminated in bankruptcy is credit card debt. In most cases, credit card debt can be partially or completed eliminated through bankruptcy.
- Liens. A lien is a creditor's right to take some or all of your property back if you fail to provide payment. Property under a lien will not be discharged in bankruptcy unless you request to exempt the property. This is typically used to exempt homes and vehicles. An attorney can examine your holdings and tell you which properties qualify for lien avoidance, allowing you to retain your property and allow the debt to be forgiven.
- Child support and alimony. Child support and alimony payments will always survive bankruptcy, and you will continue to owe the full amount of these debts. If you file for Chapter 13, you will have to include a schedule for repaying these debts in your mandatory repayment plan.
- Tax debts. There are limited ways to reduce or eliminate tax debts during bankruptcy, and the consumer must meet several requirements to qualify for tax forgiveness.
- Student loans. These types of loans are only dischargeable during bankruptcy if the debtor can show that repayment causes an unreasonable burden. Not only is this a very strict requirement to prove, student loan forgiveness may cause the court to allow other types of debt to survive your bankruptcy.