What Debts Can Be Discharged in Bankruptcy?

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One of the most common questions people ask before filing for bankruptcy is: will this actually eliminate my debt? The answer depends entirely on what type of debt you have. Bankruptcy is powerful, but it is not a universal eraser. This guide explains exactly which debts can be eliminated and which ones will survive your bankruptcy.

What Does Discharge Mean?

When a debt is discharged in bankruptcy, you are legally released from the obligation to pay it. The creditor can no longer sue you, call you, or take any collection action on that debt. It is gone permanently. If you are new to the process, read What is Bankruptcy? Complete Beginner’s Guide first.

Debts That Are Typically Discharged

The following types of debt are almost always dischargeable in bankruptcy:

• Credit card debt — One of the most common reasons people file. All balances are fully dischargeable.
• Medical bills — Can be completely eliminated. One of the most life-changing benefits for people who faced serious illness without adequate insurance.
• Personal loans — From banks, credit unions, or online lenders.
• Payday loans — Unsecured debts that can typically be discharged.
• Utility bills — Past due amounts can be discharged, though the utility may require a deposit before restoring service.
• Older income tax debts — Taxes more than 3 years old that were filed on time and were not the result of fraud may be dischargeable.

Debts That Cannot Be Discharged

Student Loans

Student loan debt is notoriously difficult to discharge. To eliminate student loans in bankruptcy, you must file a separate lawsuit called an adversary proceeding and prove that repaying the loans would cause you undue hardship. This is a very high legal standard that few people meet.

Child Support and Alimony

Domestic support obligations are completely non-dischargeable. If you owe child support or alimony, bankruptcy will not eliminate these obligations. The automatic stay also does not stop collection of domestic support obligations.

Recent Tax Debts

Income taxes from the past 3 years generally cannot be discharged. Payroll taxes, sales taxes, and taxes resulting from fraud are never dischargeable.

Debts From Fraud

If a creditor can prove that you obtained credit or money through fraud, misrepresentation, or false pretenses, that debt cannot be discharged. This includes lying on a credit application or writing bad checks.

Criminal Fines and DUI Debts

Fines and penalties owed to the government including criminal restitution orders generally cannot be discharged. Debts arising from personal injury or death caused by drunk driving are also not dischargeable.

Secured Debts: A Special Category

Secured debts tied to collateral like a mortgage or car loan work differently. The debt itself can be discharged, but the lien on the property survives. If you discharge your mortgage debt but keep the house, the lender can still foreclose if you stop paying. To keep secured property, you generally must continue making payments or reaffirm the debt. Read How to Stop Foreclosure with Bankruptcy for specifics on protecting your home.

Chapter 7 vs Chapter 13 Discharge

In Chapter 7, eligible debts are discharged at the end of the case, usually within 4 to 6 months of filing. In Chapter 13, you complete a 3 to 5 year repayment plan, and then remaining eligible debts are discharged. Chapter 13 can discharge some debts that Chapter 7 cannot, including certain property settlement debts from divorce. Read Chapter 7 vs Chapter 13 Bankruptcy to compare both options.

What Happens If a Creditor Tries to Collect a Discharged Debt?

After your discharge, creditors are permanently prohibited from taking any collection action on discharged debts. If a creditor violates the discharge injunction, you can report them to the bankruptcy court, which can hold them in contempt and award you damages.

Conclusion

Bankruptcy is most effective against unsecured consumer debts like credit cards, medical bills, and personal loans. It is much less effective against student loans, recent taxes, and domestic support obligations. Before filing, take inventory of all your debts and determine how much would actually be eliminated. Continue your research with Bankruptcy vs Debt Settlement or learn about protecting your property in Bankruptcy Exemptions by State.