Most debts are dischargeable, or wiped out, in bankruptcy, from credit cards and personal loans to medical bills and unpaid rent. However, some debts cannot be discharged based on when they were incurred or the type of debt they are. For example, student loans are typically not discharged in a bankruptcy proceeding, along with debts obtained by fraud.
Common Types of Bankruptcy Filing
When individual debtors decide to file for bankruptcy, they typically choose either chapter 7 or chapter 13. The general process for each is virtually identical, except in chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated and used to pay his creditors, while in a chapter 13 proceeding, creditors are repaid through a three- to five-year repayment plan and the debtor keeps his assets. Whatever unpaid debts remain in both proceedings are discharged, and the debtor is no longer legally responsible for them.
Bankruptcy filers are able to discharge a large variety of debts. Commonly discharged items include credit cards, medical bills, car and other vehicle loans, and personal loans. Other dischargeable debts include most collection accounts and judgments, unpaid rent, utility bills and certain tax obligations. In the case of chapter 7 bankruptcy, if a debt is secured by collateral, such as an auto loan or home mortgage, the debtor typically must surrender the asset prior to receiving a discharge unless the asset qualifies for an exemption under state or federal law, the debtor reaffirms the debt and continues to make payments, or the asset has little to no value so the bankruptcy court allows the debtor to keep it.
Although a debt is dischargeable in bankruptcy, the debtor may not be eligible for the discharge if the debt is too recent. A debtor cannot discharge a debt that he acquired within the 90 days prior to filing the bankruptcy petition, particularly if it was for luxury goods or services. As of 2013, the same is true for cash advances in excess of $925 made within 70 days of the filing.
Although most debts are dischargeable in bankruptcy, several types are not. This group of debts includes student loans, child support and alimony, wrongful death or personal injury damage judgments, debts incurred through fraud, nondischargeable debts from a previous bankruptcy and payment obligations pursuant to a restitution order.