Most people are aware that one of the hallmarks of filing for
bankruptcy is receiving a discharge of debts at the conclusion of a case. While a
debt discharge certainly provides you with the benefit of relinquishing
your obligation to make payments to a creditor and a financial fresh start,
there are limitations for how it works. Unlike some myths and misconceptions
may have led you to believe, bankruptcy discharges do not eliminate all debt.
The U.S. bankruptcy code was designed to help honest debtors with insurmountable
debt loads, and part of this entails discharging certain debts at the
end of a bankruptcy case. Whether you file for Chapter 7 or Chapter 13
bankruptcy, you may no longer be obligated to pay certain outstanding
debts. Here are a few key points to understand about discharges and what
bankruptcy can and cannot do.
- Non-dischargeable debts – There are certain debts that are generally ineligible for discharge.
These commonly include payments ordered by a family court (such as alimony
or child support), tax debts, and secured debts (where there is collateral).
In most cases, student loan debt is not dischargeable.
- Unsecured debts – Unsecured debts are debts without collateral. This means that
a creditor does not have an ability to take possession of property if
you fail to make payments. Unsecured debts most commonly include credit
- Liens – Discharges eliminate debts, but they do not get rid of any liens
on your property held by creditor. Creditors can still repossess property
if they have a lien.
- Chapter 7 and Chapter 13 – Both
Chapter 7 and
Chapter 13 allow for a discharge of certain debts at the end of a case. However,
the nature of the discharge will vary. For example, individuals who file
under Chapter 13 will continue to make payments to creditors for the duration
of a three to five year repayment plan. At the end of the plan, remaining
eligible debts may be discharged. Chapter 7, on the other hand, may eliminate
larger debt loads of dischargeable debt because filers do not make payments,
and instead liquidate any available assets for use in payment to creditors.
Preparing clients for a discharge of debts and their life after bankruptcy
is a primary goal at Allmand Law Firm, PLLC. By working closely with clients
and exploring all of their available options, we provide guidance along
the most appropriate steps toward a successful outcome. To learn more
about your options and what our bankruptcy lawyers can do to help you
anywhere in the Dallas – Fort Worth area,
contact us for a FREE financial empowerment session.