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Chapter 7 bankruptcy can be an attractive option for people who have a lot unsecured debts and are looking for relief.

In fact, millions of Americans have turned to Chapter 7 bankruptcy when they were having trouble paying bills or making ends meet.

What Does Chapter 7 Do?

The most important aspect to Chapter 7 bankruptcy is that it discharges (eliminates) many unsecured debts.

In bankruptcy, the discharge is a permanent court order that bars creditors from pursuing any collection action against the debtor. 

This discharge typically happens after the time allowed for creditors to object has expired.

Many types of unsecured debts can be discharged; however, it’s important to know that not all debts are eligible for discharge.

Dischargeable Debts

Types of debt that may be discharged through Chapter 7 bankruptcy include, but are not limited to:

·         personal loans

·         credit card debt

·         medical bills

·         utility bills

·         payday loans

·         parking tickets /auto accident claims

·         some judgments

·         certain repossession deficiencies

·         certain business debts

·         some leases

·         certain tax debts

Once these debts are discharged, the bankruptcy filer is no longer obligated to pay them and he or she can begin rebuilding his or her credit.

Dischargeable Debts May Be Contested by Creditors

Keep in mind, if a creditor successfully contests a debt discharge, the debtor may still be responsible for payment on that debt. 

Types of possibly dischargeable debts include awarded damages for willful and malicious injuries to others, embezzlement, debts caused by fraud or dishonesty and debts arising from a breach of fiduciary duty.

Non-Dischargeable Debts

Certain debts, such as income taxes less than three years old, child support, spousal support, student loans, criminal fines and restitution, trust fund taxes and penalties owed to the government are not dischargeable. 

A debtor may file Chapter 7 bankruptcy and have other debts discharged, but he or she will still be responsible for payment of those non-dischargeable debts.

The Listing of Debts

It’s extremely important that you make a complete list of all debts for which you could be held liable because any debts not listed on your bankruptcy petition will not be discharged. 

By reviewing your debts and determining which ones could be discharged, you can decide if Chapter 7 bankruptcy is the best debt-relief option for you.

If many of your debts can’t be discharged under Chapter 7, filing Chapter 13 bankruptcy to reorganize your debts may be a better choice.