Many people think that filing for bankruptcy is one of the best ways to erase all debt and start over financially. However, there are certain debts that will not be forgiven, even if you file for Chapter 7 bankruptcy. Before you decide whether filing for Chapter 7 bankruptcy is the best choice for you, you should take note of the debts that will be discharged, as well as the debts that will remain afterwards.
Discharging debts in bankruptcy
It usually takes approximately four months for the bankruptcy court assigned to your case to officially discharge your debt. When you file for Chapter 7, the court will assign a trustee to liquidate your assets and use the proceeds to pay off some of your debts owed to creditors. Generally, your home, primary vehicle, and other necessities will be exempt from liquidation, but second homes and vehicles, collectors’ items, and bank accounts are not exempt. Once these steps are completed, the court will typically discharge your debt.
What debts cannot be discharged?
Bankruptcy discharges a debtor from personal liability for certain debts, but there are a few that will not be eliminated in a Chapter 7 bankruptcy. The following debts are generally not forgiven in Chapter 7 bankruptcy:
- Student loans (unless you can demonstrate undue hardship)
- Child support or alimony
- Unscheduled debts
- Unpaid taxes (e.g., tax liens)
- Wrongful death or personal injury damages from drunk driving cases
Denial of discharge
Most debtors will have their bankruptcies approved, but a discharge can be denied if the debtor does not meet the necessary criteria under 11 U.S.C. Sec. 727. A court has the power to deny a Chapter 7 bankruptcy for any of the following reasons:
- Failure to provide tax documents, as requested
- Failure to follow bankruptcy procedures
- Debt does not qualify for a discharge
- Failure to take personal financial management course
- Transferring or concealing property in attempt to hinder, defraud or delay creditors
Making the decision to file for Chapter 7 bankruptcy can be overwhelming. Fortunately, there are experienced attorneys in your area that can help you make this crucial decision.