What To Know About Debt Discharges Under Chapter 7 Bankruptcy

If you've decided that the time to declare bankruptcy is now, you should pay close attention to the issue of discharges. When the bankruptcy court eliminates the debt from your responsibility, it's called a discharge. The goal of bankruptcy is to discharge as much debt as possible and make your fresh start as easy as possible. To find out what types of debts are generally eligible to be discharged, read on.

Credit Card Debt

It's safe to say that many people end up declaring bankruptcy when they get in over their heads with credit card debt. Those little plastic cards are far too easy to obtain and even easier to use. Soon, you might find yourself struggling just to pay the minimum payment due each month. Fortunately, credit card debt is usually 100% discharged with a chapter 7 filing. As soon as you file, you no longer owe the monthly payments and that should be a refreshing and positive change for your budget.

Medical Bills

Make no mistake about it, medical costs are exorbitant and it's possible to run up a large medical debt. Even those with health insurance can be burdened by deductibles and co-pays. Medical debt collectors are often extremely aggressive when bills are not paid on time. Lucky for chapter 7 filers, medical debt can be discharged and you can kiss those debt collectors good-bye thanks to the automatic stay.

Personal Loans

This is one area of debt that some bankruptcy filers fail to take advantage of. If you've borrowed from a friend or family member, that debt can be discharged. Unfortunately, not being able to pay this type of debt can be embarrassing and some filers don't list the debt on their matrix. It should be noted that the loans don't have to be on paper – just a verbal promise to repay the loan is all that is needed for it to be discharged. Personal loans from banks or signature loans fall into this category too.

Contractual Obligations

Many financial contracts will become null and void under a chapter 7 filing. That includes things like a contract to purchase something (like a house), professional services contracts for small business owners, and even agreements to sell something to someone. For renters, real estate leases may no longer be valid if you should wish to move out with a chapter 7 filing.

You may have noticed that mortgages, auto loans, child support, spousal support, and tax debts are missing from the above list of discharges. Speak to a bankruptcy lawyer about these more complicated debt situations to find out what can and cannot be discharged with a chapter 7 filing.

For more information, contact a bankruptcy lawyer.


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