If you’re dealing with crushing debt and you feel you’re running out of options, you may be considering filing a Chapter 7 bankruptcy. While Chapter 7 bankruptcy can be an ideal option for many debtors, it’s not the right solution for everyone. Is Chapter 7 bankruptcy right for you? The right answer will depend on a number of factors, such as your monthly income, the type and amount of debt you have.
You see, not all debts can be discharged in Chapter 7 bankruptcy. For instance, if the lion’s share of your debt is past-due alimony and child support, Chapter 7 will not discharge (erase) those debts. Why not? Because lawmakers decided that it is in the public’s best interest not to allow such debts to be wiped out in bankruptcy. Child support, for example, is just too important to be included in a bankruptcy discharge.
Which Debts Are Excluded?
For the most part, it’s unsecured debts that can be discharged in a Chapter 7 bankruptcy. We’re referring to medical bills, credit card debt, personal loans, past-due cellphone and utility bills, and even taxes of a certain age. If the majority of your debt cannot be discharged in a Chapter 7 bankruptcy, it may not make sense to file.
On the other hand, if you have enough dischargeable and non-dischargeable debt that filing Chapter 7 would free up your income so you can devote it to non-dischargeable debt, it just might make financial sense to file.
For instance, if you have $30,000 in credit card debt and $15,000 in child support debt, by wiping out the $30,000 in credit card debt, it may be a lot easier for you to catch up on your child support arrears.
If you have recent tax debts, it’s important to understand that Chapter 7 bankruptcy does not eliminate recent taxes. However, if you can’t afford to pay your recent taxes, a Chapter 13 bankruptcy may offer you the relief you need. Chapter 13 repayment plans allow debtors to pay off recent tax debts over a period of three to five years.
It can also be difficult to discharge student loan debt in bankruptcy. If you’re trying to tackle student loan debt with bankruptcy, you’ll need to prove that paying back the loans will cause undue hardship, which can be a difficult standard for debtors to meet, but it’s not impossible.
Chapter 7 is excellent for erasing credit card debt, medical debt, personal loans, and utility bills. If you have these types of debts and you can’t see light at the end of the tunnel, give us a call. We’d be happy to help you explore your options.
Do you have questions about your debts and whether they can be included in Chapter 7 or Chapter 13 bankruptcy? If so, contact us today to schedule a consultation.