What Debts Can Be Erased in Chapter 7 Bankruptcy? 

By David Jones

Chapter 7 bankruptcy can be used to relieve legal debts and help you get a fresh start if you have fallen on hard times or are having trouble paying your debts. Most people think this means that the bankruptcy discharge will wipe out all their debt. However, not all debts can be discharged in Chapter 7. 

Before filing, check out what Chapter 7 bankruptcy lawyers say about it and let an expert guide you through the process. 

Debts that a Chapter 7 Bankruptcy Discharge Wipes Out Forever

Chapter 7 bankruptcy can erase most debts that are incurred by American consumers. These are the types of Chapter 7 bankruptcy discharges:

  • Medical bills
  • Unpaid utilities
  • Phone bills
  • Credit card debt
  • Unpaid credit card, medical, and other unsecured debt judgments
  • Personal loans and other unsecured debt
  • Your personal liability for secured debts such as car loans (if no Reaffirmation Agreement)

Debts that May be Discharged in a Chapter 7 Bankruptcy

If they are older than three years, back taxes owed on income tax returns filed when due can be eliminated. It’s not enough to determine whether a tax debt is dischargeable by bankruptcy. It all comes down to timing.

Debt Discharge Timeline

The Chapter 7 bankruptcy discharge timeline usually ends within three to five months after filing. Below is a breakdown of what happens after the case has been filed.

  • 341 First Meeting of Creditors held within 30 to 45 days
  • Within 45 days of the hearing, complete the “Debtor Education” course
  • Within 60-90 days of the 341-day limit: Receive discharge from the court.
  • After the court confirms the plan, the Chapter 13 bankruptcy timeline is completed in 36 to 60 months. This is a breakdown of what happens after the Chapter 13 plan has been filed.
  • Within 30 to 45 days, 341 First Meeting of Creditors takes place,
  • Within 30-45 Days after the 341 Hearing, a Confirmation Hearing takes place to approve the repayment plan.
  • 36—60 months: The repayment plan is in place

Before a court discharge can be granted, plan payments must be made.

Any bankruptcy proceeding between a creditor, or a debtor, is governed by the Rules of Bankruptcy Procedure. These cases are often quick. Although it is possible to file bankruptcy without a lawyer, there are plenty of reasons to hire an expert bankruptcy attorney. A seasoned bankruptcy attorney can provide a firm and confident approach in these cases.

Debts that are Seldom Discharged in a Chapter 7 Bankruptcy

A bank or credit card company can ask for the discharge of a debt. If the bank believes the debtor has lied about their credit application, this can occur. Sometimes, credit card firms object to the argument that the filer never intended to pay the debt and is abusing bankruptcy.

The United States bankruptcy law decides whether an individual debtor or objecting creditor must prove their case. This problem can be avoided by putting an end to your use of credit cards immediately after you file bankruptcy. You can ask your credit counselor during mandatory pre-bankruptcy counseling if you are unsure how to adjust your budget to your monthly income. It may simply mean that you stop paying your monthly debt payments. 

Debts that a Chapter 7 Bankruptcy WILL NOT Eliminate

Taxes for the past 3 years

  • Child support or Alimony
  • Other debts arising from a divorce proceeding
  • Personal injury caused by driving under the influence of drugs and alcohol.
  • You owe the government money.
  • Penalties and fines from the court
  • Some debts cannot be discharged in Chapter 13 bankruptcy.

Even if your income meets the criteria for Chapter 7, if you owe any property settlements, speak to a bankruptcy attorney about filing Chapter 13. 

Filing for bankruptcy provides immediate protection from creditors.

The automatic stay protects you once you file a bankruptcy petition for any kind of bankruptcy. The automatic stay prohibits creditors, banks, credit card companies, or anyone else to whom you owe money from contacting you and taking any other collection actions.

The only exceptions are domestic support obligations and back taxes. This will continue to occur if your child support payments are taken directly from your paycheck. If you owe back taxes, the Internal Revenue Service is allowed to keep your tax refund to pay for it even after you file bankruptcy. The automatic stay is temporary. The automatic stay ends when the bankruptcy court grants you your discharge.

You may be interested in: What You Need to Do Before Filing for Bankruptcy