What Can and Cannot Be Discharged in a Chapter 7 Bankruptcy

Filing for Chapter 7 bankruptcy gets rid of some of your debt. The type of debt you have falls under different categories, and only certain types are eligible for discharge. Read on to learn what debt you can eliminate in bankruptcy.

Courts Can Discharge Unsecured Debts

Debt that is owed for items that the bank cannot retrieve is called unsecured. Some of the most common unsecured debts included in a bankruptcy filing are medical bills, credit cards, utilities and personal loans. Since there isn’t a tangible item to retrieve, these debts are usually forgiven. A bankruptcy Maryland lawyer can help determine if your debt is unsecured when it’s time to file. 

Courts Might Discharge Secured Debts

Secured debt is usually for purchases such as a home, car or recreational vehicle. These are items that the bank holds titles to until you pay off the loan. This debt is secured because the bank can repossess the items if you don’t pay for them. In this situation, bankruptcy doesn’t change the fact that the bank still owns the property. Occasionally if the loan is almost paid off or the property’s value is so low that it costs more to retrieve it, then the bank allows you to keep the property, and the debt is forgiven.

Debts That Cannot Be Discharged

Unfortunately, you can’t write off all of your debts in bankruptcy. Some items require establishing payment plans and returning the money regardless of your income and financial situation. A few of the most common nondischargeable debts are past income taxes, student loans and money owed due to legal judgments against you. It’s also common to exclude any large purchases you made within 90 days of filing because it is assumed that you purchased those after you decided to pursue bankruptcy. 

Filing bankruptcy gets rid of most unsecured debt and occasionally some secured debt. Make sure you know what debt you can discharge before you file.