Filing a Chapter 7 Bankruptcy has many advantages for you if you are unable to pay most or all of your debts. Chapter 7 Bankruptcy can get rid of most unsecured and other kinds of debt so that you are given a “Fresh Start.” To receive the Fresh Start, however, you may have to give up some of your assets if they are worth more than available exemptions. Moreover, Congress made it harder for some persons to qualify for a Chapter 7 Bankruptcy. But, if you do qualify and need a Chapter 7 Bankruptcy, it is a powerful solution to your financial woes.
Types of Debt that Can be Discharged in a Chapter 7 Bankruptcy
Generally, most types of consumer-related debt can be eliminated with a Chapter 7 Bankruptcy. Some types of debt that you can discharge:
- Credit cards
- Revolving cards
- Store cards
- Personal loans
- Installment loans
- Medical bills
- Car loans (if you are giving up the car)
- Boat loans (if you are giving up the boat)
- Mortgages (if you are giving up the house)
- Home equity loans (if you are giving up the house)
- Condominium or homeowner’s association fees or assessments (if you are giving up the house)
- Judgments based on the above types of debts
- Some income taxes (very complicated rules apply)
- Student loans (very stringent conditions, few debtors can meet them)
Before a bankruptcy court can discharge these debts from you, each of your creditors will be given an opportunity to make an argument to be repaid. But once the bankruptcy court discharges your debts, your creditors are forbidden from ever collecting on the debts again, and any judgments that were entered against you also cannot be collected.
Special Treatment of Unpaid Taxes in Chapter 7 Bankruptcy
Regarding the complicated rules that apply to your unpaid taxes, you generally may be able to discharge your taxes if you meet the following 5 requirements:
- The due date for the filing of the tax return in question was 3 years ago or longer.
- You filed a tax return at least two years ago.
- The tax assessment is at least 240 days old.
- There was nothing fraudulent, evasive, or criminal about your filed tax return
- You did not engage in a tax evasion scheme
Special Treatment of Student Loans in Chapter 7 Bankruptcy
Regarding student loans, you can discharge them if you can establish that repayment of the debt would cause you and your dependents “undue hardship.” Undue hardship is a very high hurdle to jump and few debtors ever try to do so. However, if you are disabled, and your disability keeps you from working any job (not just the jobs you may qualify for as a result of your education, skills, and experience), you might be a candidate to explore the possible discharge of student loans in a Chapter 7 Bankruptcy. Another example of circumstances giving rise to possible discharge of student loans is the single mother with multiple children in a low-paying, no-advancement type of job. If she has a disability or other complication keeping her in a low-paying job, then a court may begin to pay attention to her student loan discharge application.
Types of Debt that Cannot Be Discharged in a Chapter 7 Bankruptcy
Although Chapter 7 Bankruptcy does eliminate many types of your debt, it does not discharge all types of your debt. Some debts that cannot be eliminated include:
- Debts for child support, maintenance, spousal support, alimony
- Debts incurred as a result of a divorce or property settlement agreement
- Debts you incurred for causing death or serious personal injury resulting from your operation of a vehicle, boat, aircraft, or other motorized device while intoxicated from alcohol or drugs
- Debts owed as a result of criminal restitution
- Debts that were not disclosed in your bankruptcy petition which deprived creditors their ability to file proofs of claim
- Debts arising from your fraud,
- Debts owed from your malicious and willful acts or from larceny, breach of promise, or embezzlement
- Money owed to a government as a result of fines, traffic violations, moving violation, etc.
- Debts you incurred by fraud, false pretenses, or materially false statements regarding your financial condition
There are many other types of debt that you cannot discharge in a Chapter 7 Bankruptcy. You will need to consult with us to determine them. A good example of other complicated rules necessitating a consultation with us is the question of when debts were incurred. Certainty, if you racked up a bunch of debt yesterday and you want to file a Chapter 7 Bankruptcy tomorrow, you will have a big problem. On the other hand, if you used a credit card to purchase luxuries, obtain cash advances, or obtain any credit in a recent period of time, those charges themselves may not be dischargeable in a Chapter 7 Bankruptcy. The exact timing of the filing of a Chapter 7 Bankruptcy requires advice from us.
Some Debts You May Want to Still Owe After Chapter 7 Bankruptcy
There are incidents where you may not want to discharge all of your debts. Common examples of a debtor wanting to keep a debt include a mortgage or a car loan. In these circumstances, you may want to keep your home and/or your car. To do so, you will need to reaffirm or re-promise these debts so they survive bankruptcy and you can continue to keep your home and car.
The filing of a Chapter 7 Bankruptcy is a very important decision. It requires an analysis of what types of debt you have, when you incurred them, and when you should file a Chapter 7 Bankruptcy petition. Despite the roadblocks and other hurdles Congress put in front of struggling Americans, qualifying for Chapter 7 Bankruptcy can be an extraordinary and powerful act to obtain a financial Fresh Start.