Bankruptcy is a way for debtors to discharge certain debts, and restructure others to make them more manageable. It is intended as a way for those struggling with mounting debts to hit “reset,” in order to take a breather, and, eventually, reenter the economy with a cleaner slate.
If you’re considering bankruptcy as a lasting solution for debt relief, it’s important to know what it really means to receive a discharge — including what types of debt you can cancel, and how a bankruptcy discharge may impact your financial future.
What Is a Discharge of Debt?
In short, a bankruptcy discharge is a court order issued at the conclusion of the bankruptcy process, which relieves you of the ongoing obligation to pay a debt. In order to receive a discharge, you must fully complete all of the required steps of the bankruptcy process.
A bankruptcy discharge frees the debtor of their liability for the debt. This means that once the discharge has been issued, relevant creditors will be barred from contacting you or otherwise making attempts to collect on the debt (though creditors may still continue to enforce any liens associated with a secured debt).
The process for obtaining a discharge will vary from case to case, depending on the unique circumstances of the debtor, and which type of bankruptcy process they’re pursuing. In a Chapter 7 bankruptcy, the debtor works with a trustee, who oversees the collection and liquidation of their nonexempt assets to pay back creditors. After this process has been completed, remaining debts may be discharged. This type of bankruptcy typically takes several months to complete. In Chapter 13, the debtor develops a long-term repayment plan with their creditors, in order to restructure their debts to make them less of a monthly burden. At the end of this repayment period — which typically lasts about three to five years — remaining debts may be discharged.
After the discharge order, the debtor will be free of their liability for the discharged debts, and can take action if creditors continue to try to collect on an obligation that has been discharged. However, if any debts were also held with a codebtor, that other party will not be released from their obligation, and may end up becoming liable for the entire remaining balance. Similarly, it’s important to remember that discharging debts through bankruptcy can impact your credit score, and a bankruptcy filing will remain on your credit report for seven to ten years.
With all this being said? Keep in mind, too, that bankruptcy can help debtors discharge certain debts — but it will not allow filers to automatically discharge every type of debt.
What Debts Are Typically Discharged in Bankruptcy?
Bankruptcy can help discharge many common types of unsecured debt — that is, those debts that are based purely on your promise to pay your creditor, often with interest. Some types of debt commonly discharged in bankruptcy include:
- Credit card charges
- Medical bills
- Personal loans
- Certain business debts
- Certain past due utility bills
- Promissory notes
- Past due rent (and other debts stemming from lease agreements)
- Many civil court judgments
At the same time, it’s incredibly important to remember that bankruptcy will not automatically discharge all of your debts. There are certain types of debt that cannot typically be discharged by bankruptcy, including:
- Domestic obligations (like child support and alimony payments)
- Fines and penalties relating to criminal activity
- Tax obligations
There are also some debts that fall into a bit of a gray area, and are not typically dischargeable — though there may be some exceptions, based on your unique circumstances. Student loans are the most prominent example. In the case of student loans, a filer must be able to prove that their obligations create undue hardship, in order to have the courts consider discharging this debt.
Finally? Keep in mind, too, that bankruptcy is only able to discharge pre-filing debts, or those incurred before you began the bankruptcy process. Broadly speaking, you will remain responsible for any further obligations you assume following your filing date. It’s also important to remember that a debt cannot be discharged unless it is included in your bankruptcy petition.
Other Factors to Consider
If you find yourself considering bankruptcy as a potential course of action for getting out from under burdensome debts, it may prove important to find someone who can help you address your specific questions and concerns. Beyond getting a handle on which types of debt you’re facing, it’s also crucial to consider which type of bankruptcy may apply for you — while also exploring any practical alternatives that could work for your unique circumstances.
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 details — just get in touch, and we can help set you down the right path to the fresh financial start you truly deserve.
At the Gunderson Law Firm, we take all steps possible to protect our clients and their assets immediately and throughout the bankruptcy process, while also offering counseling on realistic ways to avoid serious debt issues in the future.
Whether you are a business owner, a wage earner, retired, or otherwise, we can help address your specific situation with strategic plans to help put severe indebtedness behind you so you can enjoy life again. Drop us a line if you’d like to continue the discussion online or in-person.
