When an individual is in serious debt and is not able to repay loans and credit card bills, they file for bankruptcy to reduce or eliminate their debt. There are two most common types of bankruptcy known as chapter 7 and chapter 13 of bankruptcy
• Chapter 7
• Chapter 13
Bankruptcy Chapter 7:
In chapter 7 bankruptcy most of the individual’s property is sold and that amount is used to pay off the debts. It is generally for people who have very low income and who are not able to pay back all or some portion of their debts. If an individual income is less than the median level for their state they are eligible for filing chapter 7 bankruptcy. If a person is believed to pay at least some of their debts, they are required to file for chapter 13 bankruptcies.
Bankruptcy Chapter 13:
It is also called a reorganization bankruptcy. In this type of bankruptcy, the individual’s property is not sold and if they successfully complete a repayment plan which is ordered by the court, they may be able to keep their property. To be eligible for Chapter 13 bankruptcy an individual must have a regular income and total secured and unsecured debt under a specific amount.
The main goal of filing for Chapter 7 bankruptcy is to discharge debts, although some debts cannot be discharged.
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Also, Read Common Questions About Bankruptcy
A bankruptcy discharge releases the debtor from personal obligation for certain kinds of debt. They are no longer legally bound to pay any debts that are discharged. The creditors lose the right to take any legal action against the debtor. Only debts that were there before that date of filing for Chapter 7 bankruptcy will be discharged, however, the debts that arose after filing for bankruptcy will be the responsibility of the debtor and they cannot be discharged.
They are divided into two categories:
- • Pre-filling debt: It incurred before the day of filing for bankruptcy. At the end of the case the court will discharge all qualifying debt.
• Post-filling debt:
• The bills that debtors rack up after submitting their initial paperwork are post-petition debt. In all bankruptcy types, the debtor will be responsible for paying all balances that incur after filing date, even when the case is still processing.
Bankruptcy usually dismisses the following debts:
• Credit Card debt
• Medical bills (Recent study reveals about 62% of bankruptcies are related to medical debt)
• Personal Loans from friends, family and employers et
• Utility bills
• Business debt
• Unpaid/ overdue taxes
• Debts arising from car accidents (except those involving drunk driving)
• Responsibilities under leases and contracts
• Collection agency accounts
• Dishonored checks (unless they are based on fraud)
• Money owed under lease agreements
• Civil court judgments (unless they are based on fraud)
• Tax penalties and unpaid taxes past a certain number of years
• Attorney fees
• Social security over payments
• Veterans assistance loans and over payments
The debts that are not discharged lies under the following conditions:
• Debts that are never discharged
• Debts That Aren’t Discharged Unless You Meet Legal Exception
• Debts Discharged Unless a Creditor Successfully Objects
Debts that are never discharged:
There are some instances where bankruptcy won’t erase debtor’s debt, which are as follow:
• Student Loans
Both federal and private loans are exempt from chapter 7 bankruptcy. Unless the debtor proves that they have suffered an undue hardship, like a disability or they faced unfair practices from the school, that prevented them from working to earn money and make their loan repayments. But the debtor also has to give proof that they did everything possible to pay their loan.
• Child Support and domestic debt:
Child or spousal support or alimony payments cannot be discharged in bankruptcy. If the debtor is divorced and in a divorce agreement, it is specified that they are responsible for their ex’s legal fees, credit card debts or other debts then those debts won’t be discharged either.
• Debts incurred through fraud:
Money, property, or any other service obtained through fraud or wrong pretenses are not dischargeable. A wrong pretense could be a misrepresentation to the creditor in order to obtain credit.
• Luxury purchases or cash advances obtain soon before filing for bankruptcy
• Government debts:
Claiming bankruptcy also will not save the debtor from paying debts they owe to the government, like penalties, fines, or other fees.
Disclaimer: An attorney/lawyer shall be consulted when making a decision for your legal needs. Rules and laws described in this blog shall only be used as a source of information and cannot be contested in a court of law, neither can be used as legal advice.