It is probably a myth that many of us have come to believe that bankruptcy relieves one of all debts. Although it may sound attractive about not being obliged about settling your creditors and make a new start with your business, there are some facts to the discharge of debts that one needs to clearly understand about – it may be a surprise that bankruptcy conditions when filed do not eliminate all debts.
When filing for bankruptcy using Chapter 7 or Chapter 13, the U.S. Bankruptcy code doesn’t enforce you to pay certain outstanding debts. The code was primarily designed for the benefit of honest debtors who struggle with huge debt loads. It benefits them by discharging certain debts at the culmination of a bankruptcy case. Let’s understand further about discharges and what debts can be cleared and what cannot be
- Non-Dischargeable Debts: There is a category of debts that are directly ineligible for a discharge. Payments ordered by a family court (Alimony/ Child Support), Tax Debts and Secured Debts (involving collateral) fall under this category. In most cases, student loan debts are also non-dischargeable
- Liens: Though debts associated in a property are discharges, the liens on the property held by a creditor cannot be eliminated. This will end in a condition of repossessing the property by your creditors who have liens
- Unsecured Debts: These are debts without collateral – commonly includes a credit card debt. In these cases, the creditor cannot take possession of the property if you fail to make any payments
- Chapter 7 & Chapter 13 bankruptcy debts: These codes allow a discharge of certain debts at the end of the bankruptcy case but the nature of the discharge will differ depending on the code. To cite an example of Chapter 13 personal bankruptcy scenario, the individual will continue to pay the creditors for three to five years using a repayment plan. At the end of the plan, the pending debts are eligible to be discharged. On the other hand, the scenario with Chapter 7 bankruptcy eliminates larger debt loads as the people who file for bankruptcy do not make any payments – they may liquidate their assets to pay their creditors.
At Recovery Law group, we work with individuals and companies towards the discharge of debts after a case of the bankruptcy filing. The needed guidance and assured steps towards a positive outcome in terms of debts discharge are meted out to our clientele in Dallas and Los Angeles areas.