Bankruptcy is never a place anyone wants to find themselves. However, it is a place where you may find yourself after suffering a loss of income or some other accident. You may find yourself in over your head with debt that you cannot afford to pay. In the event you find yourself in bankruptcy, it is helpful that you know as much information as possible. There are two of the most common types of bankruptcy that you can file for personal reasons. They are Chapter 7 and Chapter 13. No matter which chapter of bankruptcy the court allows you file, you can discharge some of your debts. They cannot all be discharged, which is often a surprise to people when they find themselves in this position. When your debts are discharged, it means that you do not have to pay the debt. The creditor is not able to take any action against you for not paying the debt. This article will outline more information about Chapter 7 and Chapter 13, but you should contact a Chapter 7 bankruptcy lawyer if you have more in-depth questions.
What is Chapter 7?
When there is a Chapter 7 bankruptcy, the court appoints a trustee to sell as many assets as possible. After this, the proceeds from the sale of your assets are used to pay your debts. In most cases, the money is not enough to pay off all of your debts, so most of your creditors will receive some amount of the money you owe them. Not all of your assets can be sold as some of them are protected. These assets include your car, clothes, tools needed for a job, the house in which you live, and pensions. A second house, second car, boats, investment accounts, and bank accounts are all fair game to be sold. This entire process takes about four months.
What is Chapter 13?
When there is a Chapter 13 bankruptcy, you agree to pay a specific amount of your debts. You agree upon the amounts of the debts that you pay. You must pay them within 3 to 5 years. If you pay them, your debts are discharged, and you are allowed to keep your other assets that are not exempt. The court may not allow you to file for Chapter 7 if you do not meet the requirements. When this happens, your only option is to file Chapter 13.
What Debts are not Discharged?
There are about 19 categories of debts that cannot be discharged, depending on which Chapter you file. Some of the debts that you may not be able to discharge are:
Child Support and Alimony
Unpaid taxes may include income tax, tax liens and penalties, Social Security taxes, and unpaid employee withholdings. However, if back taxes are for a tax return that is three years or older, it may be discharged. If you cannot pay your taxes, and this is why you are interested in bankruptcy, you may want to consult a tax attorney.
Debts that are caused as a result of an injury that is willful and malicious to someone else. This rule is only for injury to another person. It does not include property.
Student loans cannot be discharged if you recently graduated or stopped going to school. You may be able to have student loans discharged if you can provide you cannot afford to pay them and will not be able to pay them. You have to have tried to pay back the loan for it to be considered. First, you should determine if you can change your payment plan to pay your student loans.
Mortgage for property in which you live cannot be discharged. The laws for your ability to keep your house vary from state to state. If you can make your payments and the equity is less than the state determines.
Debts that do not belong to you or that you did not mention when you filed bankruptcy cannot be discharged during your bankruptcy process. The debt must be in your name. It cannot be in your spouse or ex-spouse’s name for it to be discharged.
Your car loan cannot be discharged if you want to keep the car. For this to happen, you must reaffirm your car loan and be able to make the payments agreed upon in the new car loan.
Any new credit card debt will not be discharged. If you decide to purchase a lot of items on your credit cards, they may not be discharged. The court created this rule to prevent people from going on spending sprees right before they file for bankruptcy.
Your creditors can also try to stop your debts from being discharged. They also have the ability to ask the court for relief from not being able to collect on your debts.