• Christine Thurston

​Does a Chapter 7 Bankruptcy Get Rid of All Your Debts?


It’s hard to accept that the financial situation you have been establishing for years is starting to crumble. If you feel like you are robbing Peter to pay Paul, maybe it’s time to file a Chapter 7 bankruptcy. But, does it get rid of all your debts? It’s a good question. First, what is a chapter 7?

As the most common form of consumer bankruptcy, Chapter 7 is the easiest and fastest option for everyone. It is a tool that erases overwhelming debts under the protection of federal law. Good news! The majority of people keep all of their property.

This form of bankruptcy forgives most unsecured debts. These are the loans without collateral- including credit card debt, personal loans, payday loans, and medical bills. So what is the negative to filing a bankruptcy and wiping out your debt? If you have perfect credit, you may see a decline in your credit score. However, most people actually see their credit score rise after bankruptcy, since they are erasing all their debt and starting fresh. And there are ways to rebuild your credit afterwards, such as obtaining a secured credit card.

Types of Debt that Chapter 7 Bankruptcy Doesn’t Cover

It’s no doubt that bankruptcy is one of the best solutions for people who are going through a financial crisis. In the midst of a divorce, business failure, job loss, illness, or just over-extending themselves, bankruptcy is the excellent way to resolve your debts. However, it will not discharge the following types of debt:

  • Newer Income Taxes

A Chapter 7 will not discharge any taxes due within the last three years. Further, it will not discharge any late taxes filed within the last two years, or any taxes assessed by the IRS in the last 240 days. Even though recent or unfiled back taxes cannot be discharged in Chapter 7 bankruptcy, you can discharge most older taxes. To know if you to meet the requirements, rely on an experienced lawyer.

  • Student Loans

Another debt you most likely cannot avoid through bankruptcy are student loans. In order to discharge them, you must prove you have a severe financial hardship. In our district, it is extremely difficult to prove unless you are so disabled that you cannot work.

  • Home Mortgage Loans

Real estate loans cannot be discharged in chapter 7 bankruptcy unless you are willing to surrender the property. You can keep your real estate in bankruptcy if you are current, or if your mortgage company is willing to do a loan modification.

  • Car Loan

A car loan works the same way that a mortgage does. The car is collateral for the loan. As such, if you are behind or wish to surrender the vehicle, you can do so and not owe any deficiency judgment on the car. If your current with your payments and wish to keep the vehicle, you have that option as well.

  • Debts from Willful and Reckless Acts

These include debts from fraud, theft, and embezzlement. These also cover debts for injury or death because of driving under the influence of alcohol and other substances.

  • Credit Card Debt

Going on one last spree before you file for chapter 7 bankruptcy is not a bright idea. The courts frown on any luxury or extraordinary charges made right before filing for bankruptcy.

To see if you qualify for a Chapter 7 bankruptcy, please feel free to contact us!

loans. In order to discharge

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WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE FOR RELIEF UNDER THE BANKRUPTCY CODE.

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