“What type of debt can bankruptcy eliminate? Student loan debt? Medical bills? Personal loans? Credit card debt?” The type of debt that can be erased or discharged depends on a few factors, but mostly it depends on which bankruptcy you file. For consumers, the two most common bankruptcies that are filed include Chapter 7 and Chapter 13.
Both Chapter 7and Chapter 13 give debtors a way to erase or repay most of their unsecured debts, such as credit card debt, medical bills, and personal loans. However, Chapter 7 and 13 are not identical and deciding which bankruptcy to choose comes down to: 1) your monthly income, 2) the type of debt you have, and 3) if you want to save your home from foreclosure.
Debt Forgiveness vs. Paying Debt Off
Chapter 7 bankruptcy is not only reserved for low-income debtors, it’s also for debtors who have a lot of unsecured debts, such as credit card debt, medical debt, personal loans, and past-due rent and utility bills. With a Chapter 7, these types of debts are wiped out or erased entirely.
Chapter 13 bankruptcy is generally for debtors whose incomes are too high to qualify for a Chapter 7. With a Chapter 13, the debtor pays off all or a portion of their debts over 3 to 5 years. People who want to avoid losing their home will also opt for a Chapter 13.
There are some debts that can be discharged in a Chapter 13 that cannot be discharged in a Chapter 7, such as certain divorce debts (but not spousal support). Additionally, there are some debts that cannot be discharged in a Chapter 7 or Chapter 13 all. These include but are not limited to:
- Child support
- Alimony (spousal support)
- Recent tax debts
- Many student loans (there are exceptions)
- Court-ordered fines
- Victim restitution
If you’re considering filing bankruptcy, it’s important to talk to a Harrisburg bankruptcy attorney from our firm who can get the full picture of your financial situation and steer you in the right direction. After evaluating your case, we’ll be able to tell you if it’s wise to pursue debt forgiveness under a Chapter 7 or a repayment plan under a Chapter 13.