If you file a Chapter 7 Bankruptcy, what debts are discharged? This is an excellent question I was just asked a few days ago. This person had some unemployment overpayments, child support, and student loan debt plus about 65k in credit card debt.
As a society, we have determined that some debts are so important to keeping the fabric of society tied together that they should not be discharged in a Chapter 7 Bankruptcy. Can you imagine if we allowed child support obligors to file bankruptcy on child support? Can you imagine how many obligors would not pay the child support if it was dischargeable in a Chapter 7 Bankruptcy? Child support and alimony are not dischargeable in bankruptcy.
Student loan debts are also not dischargeable unless debtor sues the student loan company and convinces a judge that repaying the debt would cause debtor an undue hardship. This is ridiculous and Congress should change this.
Credit card debt, unsecured loans, trade payables, vehicle loan deficiencies, and many other debts are dischargeable in a Chapter 7. Unemployment overpayments are also dischargeable in Chapter 7 Bankruptcy. However, keep in mind you may not qualify for unemployment again until the amount owed is paid back. The government has the right to offset benefits owed with benefits payable.
Plus, while a debt may be “dischargeable” that does not mean a creditor cannot object to you discharging the debt under Section 523 of the Bankruptcy Code for fraud or some other provision. Section 523 objections are very rare but do happen in cases where there are large cash advances or purchases on the eve of a bankruptcy filing. Even your liability on home and car loans goes away. However, if you want to keep the collateral (the home and car) you have to continue to pay on the loan.
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When the time is right, or when you are ready to get your life back, reach out to Minnesota’s largest Chapter 7 Bankruptcy law firm at www.kainscott.com. You will be glad you did.
