Contrary to popular belief, bankruptcy isn’t a unique financial solution for everyone. Several type of bankruptcy can help you deal with your debt problems. The Federal Bankruptcy Code divides the different options into “Chapters.” Each Chapter is designed to help debtors from different economic backgrounds. For example, Chapter 11 bankruptcy is a financial reorganization intended primarily for large businesses. On the other hand, individuals often turn to Chapter 7 and Chapter 13 bankruptcy to get a fresh financial start.
However, you may be wondering: Can bankruptcy eliminate all of your debts? If so, which chapter would allow you to do so? As is often the case with these types of legal matters, the answer is a bit more complex than it appears. Read on to find out what bankruptcy can actually do for you and why you should consider calling a local bankruptcy attorney before your filing.
Bankruptcy might not eliminate all debts.
There are many myths surrounding bankruptcy. Some people believe that filing for bankruptcy is a type of financial suicide. Yet, the reality is that bankruptcy can help you clear most of your debts so you can rebuild your finances from the ground up. However, that doesn’t mean that bankruptcy is a magical, miracle solution to all of your financial difficulties. Some debts cannot be discharged through either Chapter 7 or Chapter 13 bankruptcy, while others are highly complicated to eliminate.
Federal law provides that allowing some debts to be discharged would be contrary to public safety. Therefore, there are certain types of debts that cannot be discharged through any bankruptcy chapter:
- Alimony and Child Support.
- Some unpaid taxes are also ineligible. However, some state or federal taxes may be dischargeable depending on their recency.
- Debts incurred as a result of willfully causing injury to others cannot be discharged.
- Debts for personal injury or wrongful death due to misconduct.
- Tax-advantaged retirement plan loans.
- Certain debts related to divorce proceedings.
Hard to eliminate
On the other hand, there are other debts that could be eliminated by bankruptcy, but it’s notoriously tricky to make it happen.
- Student loans are very complicated to eliminate via bankruptcy. You can only do this if you can prove that these debts are causing undue hardship in your daily life.
- Also, income tax debts can only be discharged if you get a special exemption from a bankruptcy court.
Chapter 7 can eliminate most of your debt
Although bankruptcy cannot eliminate all of your debts, Chapter 7 can help you discharge most of them. This bankruptcy chapter is the ideal alternative for those who want a quick solution to their debt problem and for those who genuinely lack the resources to pay their debts.
Once a debt is discharged through Chapter 7 bankruptcy, you are no longer legally responsible for paying it.
Some of the debts that can be eliminated through this type of bankruptcy include the following:
- Credit card debts
- Medical bills.
- Personal loans without collateral.
- Unpaid utilities.
- Telephone bills.
- Your personal liability on secured debts.
- All unsecured debts.
Nevertheless, eliminating all of these debts comes at a price. During your Chapter 7 bankruptcy process, you may have to sell some of your assets to pay off your debts.
However, that doesn’t mean that you will lose all of your belongings after filing for bankruptcy. Through bankruptcy exemptions, you may be able to protect some of your most essential assets from the process. Exemptions usually include your home, car, clothing, monthly salary, etc.
In most cases, debtors do not own any ” non-exempt assets” that can be sold to repay their debts. Therefore, depending on your financial situation, you may be able to obtain a debt discharge without losing anything at all.
You may have other alternatives.
However, Chapter 7 bankruptcy is not for everyone. If you want to keep your non-exempt assets or are not eligible for Chapter 7, you can opt for Chapter 13 bankruptcy to get rid of your debts.
In Chapter 13, you will have to develop a 3-5 repayment plan with the help of your attorney to repay your debts without risking any of your possessions.
Should you work with a Bankruptcy attorney?
Choosing the right bankruptcy chapter for your case is essential to the success of your bankruptcy filing. However, this can be a difficult decision if you are unfamiliar with the process. Therefore, your best bet may be to consult with a Los Angeles bankruptcy attorney, such as KT Bankruptcy Lawyer, before proceeding with your filing. Consultations are free, so you have nothing to lose.