If you are considering filing for bankruptcy, you may be anticipating a time in the near future when all your debts will be gone. This kind of fresh start is what prompts many to seek debt relief through bankruptcy when their financial burden becomes too much to handle. Qualifying for Chapter 7 means your income and assets fall below the maximum allowed for eligibility by the means test. Chapter 7 allows for the discharge, or cancelation, of many debts.
This may sound like exactly what you are searching for to get out from under your creditors. However, Chapter 7 does not discharge every debt. In fact, there are certain debts that you will likely still be responsible for when the bankruptcy process is complete.
What will be left for me to pay?
Understanding the kinds of debts you have will be key to making the decision about whether filing for bankruptcy is right for you. Chapter 7 is most effective for someone who is overwhelmed with unsecured debt, meaning debt that is not attached to collateral. Some examples of unsecured debt include credit cards, personal loans, medical debt and utilities. However, certain unsecured debts may not qualify for discharge during bankruptcy because they are priority debts, including the following examples:
- Overdue child and spousal support payments
- Money you owe the government, such as taxes you owe for the last three years and any related fines
- Federal student loan debt, especially if you are a recent graduate, unless you can prove the loan is a hardship
- Any payments you owe for a personal injury judgement against you
- Penalties related to criminal convictions or restitution
- A loan for a vehicle you decide to exclude from bankruptcy liquidation
- Any new debts or credit card charges you acquire just before you file for bankruptcy
Your mortgage may also be excluded from debt discharge if you intend to keep your house, but some of your equity may go to your creditors. Although a bankruptcy can suspend foreclosure actions, you will still have to make your mortgage payments or catch up on what you owe if you intend to hold on to the house.
The bankruptcy process may seem straightforward, but it is actually quite complex. If you are considering this route for debt relief, it is likely you are struggling financially. You will want to take every possible precaution to avoid mistakes or missteps in the bankruptcy process that may compound your stress or jeopardize the positive outcome you are seeking.