Dischargeable and Non-Dischargeable Debts During Bankruptcy
Bankruptcy is for the honest but unfortunate individual, often says Judge Paul Glenn of the Middle District of Florida. And for those that qualify for bankruptcy protection, it is all about finding ways to start their financial life over again, leaving creditors, wage garnishments, and more behind them. There is no bankruptcy law, however, that guarantees how much of your debt will be eliminated, or discharged as it is called in legalese. If you file for Chapter 7, you might see most or all of your debt eliminated; if you file for Chapter 13, even if your debts are not completely eliminated, they may be reduced and repaid over time. Either way, there are types of debts that are most commonly discharged and other types of debts that cannot be discharged.
What is a Dischargeable Debt?
A debt that is dischargeable is one that is completely wiped out, so to speak, when your bankruptcy finalizes. No matter how much money you owed to the creditor or institution that owned the debt, you cannot be held responsible for it once it is discharged. The creditor cannot even ask you about the debt anymore. It is gone for good.
There are four main and common forms of dischargeable debts:
- Credit card debt
- Medical bills and fees
- Utility costs
- Personal loans
It pays to be reminded that discharges apply to your personal liability. If you have current car liens or mortgages that were not addressed in your bankruptcy, for example, your property can still be repossessed or foreclosed.
What is a Non-Dischargeable Debt?
Federal legislation has deemed certain debts to be too costly to creditors to allow them to be discharged. Known as non-dischargeable debts, creditors who owe these debts usually need to take no action to have them preserved, even after the most thorough of bankruptcy filing. Sometimes creditors will need to prove that your debt should be non-dischargeable based on extraneous circumstances, such as fraud. Non-dischargeable debts will need to be paid off through your own assets and finances, and will be addressed in order of priority.
The top five non-dischargeable debts, in order of priority, are:
- Child or spousal support payments
- Fines paid for criminal convictions
- Specific tax law obligations (case-to-case basis)
- Student loans
- Debts created through fraudulent means
To understand non-dischargeable debt priorities better, consider this example: You have $10,000 in child support debt and $10,000 in student loan debt. You have $15,000 worth of assets to be divided and surrendered during your bankruptcy. The entire $10,000 child support debt will be paid off and only $5,000 of your student loan debt will be paid due to the priority order. The remaining student loan debt will need to be addressed through other means, perhaps loan modifications, after the bankruptcy is finalized.
If you have questions about what you may lose and may keep during bankruptcy due to dischargeable or non-dischargeable debts, our bankruptcy attorneys in Jacksonville and St. Augustine would be happy to explain the situation in more detail for you. Contact Albaugh Law Firm and request a free consultation today.