Chapter 7 bankruptcy is designed to enable an honest consumer to get a fresh new financial start. This is done by permitting the consumer to permanently eliminate or “discharge” most debts.
The Most Common Debts That Are Dischargeable Include:
• Credit Card Debts
• Personal Loans
• Medical Bills
• Utility Bills
• Checking Account Overdrafts
• Certain Income Tax Debts Older Than Three Years
The Most Common Debts that Can’t Be Eliminated in Bankruptcy Include:
• Alimony and Child Support Obligations
• Most Recent Tax Debts
• Most Student Loans
• Debts Owed to Governmental Units (Traffic Tickets and Fines)
• Debts for Willful or Malicious Injury
• Debts Incurred While Driving a Vehicle When Intoxicated
• Debts Incurred Through Fraud or False Pretenses
• Criminal Restitution
What Happens to Non-Dischargeable Debts?
Those debts that are non-dischargeable will survive the bankruptcy. However, with most non-dischargeable debts, the creditor is precluded from collecting them during the pendency of the bankruptcy proceeding, which usually lasts several months.
What About Discharging Taxes in Bankruptcy?
Certain income tax debts can be eliminated in a Chapter 7 bankruptcy case. However, there are several multi-prong tests for determining whether a tax debt can be discharged. For a complete discussion, see Eliminating Taxes in Bankruptcy .
Don’t Be Greedy — Using Credit Cards After Deciding to File Bankruptcy Can Cause Big Trouble
Once you decide to seek bankruptcy relief, do not use your credit cards any further. Doing demonstrates bad faith and can make all of your debts non-dischargeable. See: Big No-No: Using Credit Cards After You’ve Decided to File Bankruptcy .