What Bills Will Bankruptcy Cover?

By Beverly Bird

Bankruptcy can be a complex process because different rules apply to different types of debts. Chapter 13 cases cover some bills that Chapter 7 bankruptcies do not. Whether filing for bankruptcy will benefit you, and which chapter you should file, both depend on what bills you want to get rid of.

Listed Debts

Bankruptcy generally only covers debts that you include in your petition, but this isn't always the case. The rule applies unequivocally to Chapter 13 proceedings, but some Chapter 7 bankruptcies are no-asset cases, and this changes things. In a Chapter 7 bankruptcy, the trustee takes control of your assets and liquidates them, turning the proceeds over to your creditors to satisfy as much of your debt as possible. Unpaid balances are discharged. If you have no non-exempt property for the trustee to sell, none of your creditors receive anything. Even if you had overlooked a debt, failing to list it in your Chapter 7 bankruptcy case, courts have ruled that this debt is also discharged if it existed at the time you filed because the creditor could not have received anything in a no-asset case.

Non-Dischargeable Debts

The bankruptcy code lists 19 types of debts that are not dischargeable in Chapter 7. If you file for Chapter 13, however, the list is shorter. In Chapter 13, the law gives you a break because your creditors receive payment from your disposable income each month, not the sale of your assets. Debts that are non-dischargeable in both Chapter 7 and Chapter 13 cases include child support and alimony, some taxes, debts incurred as a result of driving under the influence, student loans, some retirement plan loans, and fines and penalties you owe to the government. Debts incurred as part of the property settlement aspect of a divorce are not dischargeable in Chapter 7, but they are in Chapter 13. Some taxes that would otherwise be non-dischargeable in Chapter 7 are covered by Chapter 13. Some bills fall into a gray area – they're dischargeable unless the creditor petitions the court to make them non-dischargeable. If you have questions about a certain debt, speak with an attorney, because the rules are extremely complex.

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Secured Debts

Some debts are secured by property. Your responsibility for paying them may be discharged in Chapter 7, but you don't get to keep the collateral, such as your auto or residence. There's a way around this, however, under some circumstances. If you're relatively current with the loan, you can reaffirm the debt, effectively removing it from the bankruptcy proceedings. It's not discharged, so if you fall behind with your payments in the future, the lender can repossess or foreclose on the collateral. You must have the court's permission to reaffirm a debt. This isn't an issue in Chapter 13 bankruptcy, because you can include your past due payments in your repayment plan and keep the collateral regardless. If a creditor sued you, received a judgment against you, and used it to place a lien against your property, your bankruptcy absolves you from having to pay the debt, but it does not get rid of the lien. You must take an extra step and petition the court to eliminate the lien as well.

Utility Bills

Utility bills are covered by bankruptcy, but some special rules apply to them. Providers can't shut off your services because you've filed and owe money that you won't have to pay, but this only applies to bills you owe at the time you file. If you don't pay your bills for service incurred after this date, providers can cut your service. Utility companies also have the right to demand an additional deposit if you file for bankruptcy, and to apply any deposit you already put down against your discharged balance.

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