Although bankruptcy can eliminate some debt, it cannot get you out of all kinds of debt. Before filing for bankruptcy, it is important to know which kinds of debt can and cannot be wiped out. For the most part, filing for Chapter 7 and Chapter 13 bankruptcy can get you out of credit card debt. However, that doesn’t stand for various other kinds of debt. At the Pew Law Center, we have seen all types of debts and are expert bankruptcy attorneys.
What declaring for bankruptcy can do?
- Unless you have a special “secured” credit card, your credit card balance is an unsecured debt, that is, the creditor does not have a lien on any of your property and cannot repossess any items if you fail to pay the debt. This is precisely the kind of debt that bankruptcy is designed to eliminate.
- Bankruptcy can stop creditor harassment, but if the “harassment”‘ is simply phone calls and letters, there are simpler ways to stop it. If the harassment is more aggressive, for example, if the creditor is about to repossess your car or foreclose your mortgage, declaring bankruptcy can help.
What declaring bankruptcy can’t do?
Protect you from creditors with a secured debt – A bankruptcy discharge eliminates debts, but it does not eliminate liens. So, if you have secured debt (a debt where the creditor has a lien on your property and can repossess it if you don’t pay the debt), bankruptcy can eliminate the debt, but it does not prevent the creditor from repossessing the property.
Eliminate child support and alimony debts – Child support and alimony obligations survive bankruptcy. Regardless of what your divorce attorney says you will continue to owe these debts in full, and declaring for bankruptcy will have no effect on these obligations. Similarly, if you use Chapter 13, your plan will have to provide for these debts to be repaid in full.
Eliminate student loans – Loans were taken out for college may not be eliminated in the vast majority of cases. All types of education loans qualify as student loans and are exempt from elimination in bankruptcy: federal student loans, private lender student loans, loans directly from the school and tuition assistance loans directly from a university. The exception in these cases is if the borrower can prove he or she will never be able to work again because of complete and permanent disability, he or she may be able to include the student loan in the filing. However, the standard to eliminate student loans is very high and usually not possible.
Eliminate other non-dischargeable debts, including tax debts – These include debts that you forget to mention in your bankruptcy papers, debts for injury or death caused by your intoxicated driving and fines and penalties for violating the law such as traffic tickets and criminal restitution.
Filing for Chapter 7 means these debts will remain when your case is done. Filing for Chapter 13 means these debts will have to be paid in full during your repayment plan. Some types of debts may not be discharged if the creditor convinces the judge that they should survive your bankruptcy, such as debts incurred through fraud.