This question doesn’t have a simple answer, because it depends both on what kind of debt you have and what type of bankruptcy you file. There is a huge difference between secured and unsecured debt, and the bankruptcy process is completely different between the Chapter 7 and Chapter 13 types. Chapter 7 is a liquidation bankruptcy, where your debts are cancelled but many of your assets will be seized. Chapter 13 focuses on helping you repay your debt by reorganizing it into a more manageable payment plan. It is important to figure out exactly which debts will be cancelled before you file, so you can choose the type of bankruptcy that’s right for you and don’t have any surprises down the line.
For the most part, bankruptcy can erase unsecured debt. This includes any debt that doesn’t give the creditor the right to take property if the debtor doesn’t pay. Examples include credit cards, utility bills, medical payments, and any other type of loan that has no collateral requirement. In a Chapter 7 bankruptcy, unsecured debts are discharged at the end of the bankruptcy process. On the other hand, Chapter 13 bankruptcy might require that you include at least a portion of your unsecured debts in the repayment plan that is developed.
Secured debts are trickier during bankruptcy. Since a secured debt includes a piece of property that can be confiscated, that property is most likely going to be seized during the process of relieving the debts. Examples of common secured debts are mortgages and auto loans. During Chapter 7 bankruptcy, you choose to keep property that is eligible from a list of state exemptions. This can include assets such as equity in your home, insurance, retirement plans, personal property such as clothing and furniture, public benefits, and tools for your job.
Some types of debt are extremely difficult to or are even impossible to discharge in bankruptcy. Child support and alimony are obligations that will continue after filing. Only very limited circumstances allow for student loans to be wiped away, since you have to prove that the loans will keep you from being able to support yourself now and in the future. It is also very difficult to eliminate tax debts. Fines caused by breaking the law also most likely won’t be erased.
Will All of My Debt be Erased in Bankruptcy? – The bankruptcy process is long a complex. If you are having trouble with deciding whether it’s the right step for you, which type of bankruptcy to choose, how to get started, or any other step along the way, a competent legal team is an invaluable tool to use. Call Hathaway Law today with any of your bankruptcy questions!