Are All Debts Automatically Dischargeable In Bankruptcy?

The attorneys and staff of The Gunderson Law Firm specialize in helping individuals and businesses in the Illinois file bankruptcy in the most appropriate ways to discharge their debts, and get a fresh start at a new financial life.

With this in mind, one of the most important things to understand as you consider bankruptcy as an option for financial relief – and one of the questions we get asked most often – is whether or not your debts will be automatically discharged in bankruptcy.

The short answer? “Not necessarily – but don’t let that stop you.”

The longer answer? In many ways, it will come down to your unique financial situation. Every bankruptcy case is different, and it’s important to understand that as you begin the process. It’s crucial to understand factors like your income, your home situation, and the types of debts you have; these will be key considerations as you move forward, and weigh your options, including which type of consumer bankruptcy (i.e., Chapter 7 or Chapter 13) will work best for you.

With this in mind, consider that the type of bankruptcy you file for may impact which of your debts will be discharged, and, perhaps just as importantly, when your debts can be discharged.

Similarly, it’s important to get a handle on whether you’re facing a serious problem with secured or unsecured debts. Broadly speaking, secured debts are those in which some piece of property can be offered as collateral, such as a car or a home. Unsecured debts are those in which the loan was offered solely as a matter of good faith, with a promise to make payments, generally including interest. As a rule of thumb, secured loans cannot be discharged automatically in bankruptcy. However, they can often be restructured, to make them less of an ongoing burden.

So, to sum up: Even if bankruptcy does not work to immediately resolve you of all your debts, it may still offer some significant relief. This process can you the chance to discharge some debts and restructure others, so that you can gain some breathing room, get a handle on your financial situation, and move forward as an active participant in the economy.

Debts That Are Typically Discharged in Chapter 7 and Chapter 13 Bankruptcy

So, with all that being said, what are the debts that most consumers can expect to be able to discharge with bankruptcy? Some common examples of dischargeable debts include:

  • Credit card debts
  • Medical bills
  • Debts from car accidents, some lawsuit judgments, etc.
  • Personal loans (such as from friends and family)
  • Promissory notes
  • Certain utility bills
  • Past due rent (and other debts stemming from lease agreements)

Debts That Are Typically Not Dischargeable In Bankruptcy

As we mentioned above, secured debts typically cannot be discharged automatically in bankruptcy. Some common examples of nondischargeable debts include:

  • Child support and alimony obligations
  • Criminal penalties
  • Many types of tax debt

There are also some debts which are generally not discharged, but which may be, if you can convince a court to grant you an exception. Student loans are a common example here.

There’s More to Discuss

The lists above are by no means definitive or universal, and are intended only as a broad overview. As we mentioned near the top – everyone’s personal and financial situation is unique, and, as a result, every bankruptcy process is unique as well.

Similarly, before moving forward, it’s important to understand if you qualify for bankruptcy – and, in either case, if it’s truly the best avenue for you. In other cases, there may be alternative routes to securing your financial future and getting a handle on debts.

If you’re looking to continue the conversation with experienced bankruptcy attorneys in the Chicagoland area, don’t hesitate to get in touch with the Gunderson Law Firm. In your free initial consultation, our staff can help to provide you with actual, straightforward answers specific to your situation. No need to search for all the variables and hope you don’t miss any key detail — just call and we will tell you.

At the Gunderson Law Firm, we will take all steps possible to protect you and your assets immediately and throughout the bankruptcy process, but we can also counsel you on realistic ways to avoid such serious debt issues in the future. Whether you are a business owner, a wage earner, retired, or otherwise, we can address your specific situation with strategic plans to help put severe indebtedness behind you so you can enjoy life again. Drop us a line today to get the conversation started.

2018-12-19T10:45:28-06:00 December 11th, 2018|Community|