September 16, 2019

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Understanding Dischargeable and Non-Dischargeable Debt in Bankruptcy

debt stress

Are you dealing with debt collectors? If you feel overwhelmed by debt, you may be considering filing for bankruptcy. This will allow you to have some of your debt erased.

While bankruptcy offers relief from some debt, not all debts can be erased when you file for bankruptcy. There are debts that are dischargeable and those that are non-dischargeable.

Dischargeable debts

Dischargeable are debts that you can have erased when you file for bankruptcy. When you receive your bankruptcy discharge, you will be under no obligation to pay off the creditors of these debts any longer. Your creditors cannot come after you in order to collect what is owed to them.

These debts include:

  • Utility bills

  • Personal loans

  • Credit cards

  • Medical bills

The way dischargeable debts are treated depends on whether you filed for bankruptcy under Chapter 7 or Chapter 13.

  1. Chapter 7: In these cases, there are usually no assets to sell in order to pay creditors. Dischargeable debts are therefore dealt with by simply wiping them out completely without paying them.

    In cases where assets are available to sell for the payment of debts, first priority is given to secured debts. Unsecured debts such as credit card debts are usually the last to be paid.

     

  1. Chapter 13: Dischargeable debts under chapter 13 bankruptcy are treated as unsecured claims. However, if a dischargeable debt is secured e.g. a car loan, you can either continue to pay in order to keep the asset or surrender the asset for the debt to be discharged.

Non-dischargeable debts

This refers to debts that cannot be wiped away even when you file for bankruptcy. These debts have to be repaid. These debts have been identified under various legislations. The debtor is still obligated to pay the debt even after filing for bankruptcy.

Non-dischargeable debts include:

  • Student loans

  • Alimony

  • Child support

  • Criminal penalties and fines

  • Debts that are considered to have been acquired by fraud.

Not all non-dischargeable debts are treated the same. Some are given priority over others. Debts such as alimony, certain taxes and child support are given priority over other non-dischargeable debts. Payment of debts is based on priority.

Under Chapter 13, priority non-dischargeable debts have to be paid in full. This is addressed in the repayment plan. Unsecured non-dischargeable debts such as student loans don’t have to be included in the repayment plan. However, they will still survive the bankruptcy filing and must be repaid.

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