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Knowing your debts: What to expect during bankruptcy

No matter how much debt you're in, one of your options is to seek out bankruptcy. However, depending on the kind of bankruptcy you're seeking and your personal situation, you may not be able to discharge as many of your debts as you may believe. It's important to know your debts and what can, or cannot, be discharged if you choose to enter into bankruptcy.

With a discharged debt, you don't have to pay what you owed. Instead, it's like the debt never existed. The trade off is that your credit takes a hit. Additionally, it may take time before you can create new debts with credit cards or rental agreements.

Discharges matter, though, because if your debts aren't discharged during bankruptcies, you'll still have to pay them. Some kinds of debts, like student loans and tax debts, aren't always able to be discharged. Instead, they remain long after the bankruptcy is finalized.

What kinds of debts discharge after a bankruptcy?

The most common debts to discharge include unsecured credit card debt and unsecured personal loans. Mortgages sometimes get discharged along with medical bills or other unsecured debts.

What types of debts don't discharge after bankruptcy?

Except for in extreme circumstances, the following debts are not discharged following a bankruptcy.

  • Tax claims
  • Child support
  • Spousal support
  • Debts caused by malicious or willful injury to another person or his or her property
  • Governmental fines and penalties
  • Debts for tax-advantaged retirement plans
  • Cooperative housing fees
  • Condominium fees
  • Personal injury debts caused by the debtor's use of a vehicle while intoxicated by drugs or alcohol
  • Most government guaranteed or funded loans or benefits
  • Debts not listed by the debtor when applying for bankruptcy

If you choose to enter a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy, you may be able to discharge debts from property settlements, debts created to pay off tax obligations and malicious injury to property. Chapter 13 bankruptcies do require you to make payments for between three and five years, which would help settle those debts over time. Comparatively, a Chapter 7 bankruptcy erases your debts completely, so certain debts are not able to be discharged through that form of bankruptcy.

There are many kinds of bankruptcy to consider. Although Chapter 7 is the most common and follows the rules above, Chapter 13 and Chapter 11 could even be open to you. It's worth looking into various types before deciding on one.

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