What Types of Debt Can Be Discharged in Bankruptcy?

What Types of Debt Can Be Discharged in Bankruptcy?

If you’re drowning in debt and considering bankruptcy, one of the first questions you might ask is, “Which debts can I eliminate?” Understanding what types of debt can be discharged in bankruptcy is crucial for making informed decisions about your financial future. At United Legal Advocates, LLP, our attorneys have helped countless clients navigate the complexities of bankruptcy, and we’re here to break it down for you in clear, actionable terms.

Bankruptcy, whether filed under Chapter 7 or Chapter 13, offers a powerful tool for wiping out certain debts and giving you a fresh start. However, not all debts are created equal, and some obligations are harder—or impossible—to discharge. In this comprehensive guide, we’ll explore the types of debts that can typically be discharged, those that are usually non-dischargeable, and key considerations to help you decide if bankruptcy is the right path for you.

Debts That Can Be Discharged in Bankruptcy

The primary goal of bankruptcy is to relieve you of overwhelming financial burdens, particularly unsecured debts. These are debts not tied to specific property or collateral, meaning creditors can’t repossess anything if you fail to pay. Here are the most common types of unsecured debts that can be discharged in Chapter 7 or Chapter 13 bankruptcy:

• Credit Card Debt: For many, credit card balances are a significant source of financial stress. Whether it’s from everyday purchases or unexpected emergencies, most credit card debt can be fully discharged in bankruptcy, offering substantial relief.

  
  

• Medical Bills: Unexpected healthcare costs can pile up quickly, even with insurance. Bankruptcy can eliminate medical bills, allowing you to move forward without the weight of hospital or doctor’s fees.

  
  

• Personal Loans: Loans from banks, credit unions, or individuals (like friends or family) are typically unsecured and can often be discharged, provided there are no special circumstances, such as fraud.

  
  

• Utility Bills: Past-due amounts for utilities like electricity, water, or phone services can often be wiped out, though you’ll need to stay current on future bills to maintain service.

  
  

• Certain Tax Debts: While recent tax debts are generally non-dischargeable, older income tax debts (typically more than three years old) may be eligible for discharge if specific IRS criteria are met, such as timely filing of returns.

In a Chapter 7 bankruptcy, these debts are typically eliminated entirely after the case concludes, assuming you qualify and complete the process. In Chapter 13 bankruptcy, you may repay a portion of these debts through a court-approved repayment plan, with the remaining balance discharged upon plan completion.

Debts That Are Typically Non-Dischargeable

While bankruptcy can provide significant relief, certain debts are protected from discharge due to public policy or legal considerations. Knowing which debts fall into this category is essential for setting realistic expectations. Common non-dischargeable debts include:

• Student Loans: Federal and private student loans are notoriously difficult to discharge. You’d need to prove “undue hardship” in court, a standard that’s challenging to meet. However, recent changes in bankruptcy law have made it slightly easier to discharge certain student loans, so consulting an experienced attorney is critical.

  
  

• Child Support and Alimony: Domestic support obligations are non-dischargeable because they’re considered a priority to ensure the well-being of dependents. Bankruptcy won’t eliminate these responsibilities.

  
  

• Recent Tax Debts: Income taxes from the last three years, as well as payroll or sales taxes, are generally non-dischargeable. The IRS takes priority in bankruptcy proceedings.

  
  

• Secured Debts (Partially): Debts tied to collateral, like mortgages or car loans, are trickier. While bankruptcy can discharge your personal liability for these debts, the creditor can still repossess the property if you don’t keep up with payments. In Chapter 13, you may be able to restructure these debts to make payments more manageable.

  
  

• Debts from Fraud or Malicious Acts: If a debt arises from fraudulent actions, willful injury to another person, or drunk driving, it’s typically non-dischargeable. Courts aim to hold individuals accountable for intentional wrongdoing.

  
  

Special Considerations in Bankruptcy

Beyond the categories above, there are nuances to consider when determining which debts can be discharged:

• Co-Signed Debts: If someone co-signed a loan with you, discharging that debt in Chapter 7 may leave the co-signer responsible for repayment. Chapter 13 offers more flexibility to protect co-signers through a repayment plan.

  
  

• Lawsuits and Judgments: If you owe money due to a civil lawsuit (e.g., for unpaid services or breach of contract), those debts are often dischargeable unless they stem from fraud or intentional harm.

  
  

• Credit Card Purchases Before Filing: Large purchases or cash advances made shortly before filing bankruptcy may be flagged as fraudulent and deemed non-dischargeable. Timing matters, so discuss your recent financial activity with your attorney.

Why Consult a Bankruptcy Attorney?

Navigating the bankruptcy process can feel overwhelming, especially when determining which debts can be discharged. An experienced bankruptcy attorney can:

• Evaluate your financial situation to identify dischargeable and non-dischargeable debts.

• Advise whether Chapter 7 or Chapter 13 is better suited to your needs.

• Help you avoid pitfalls, like incurring non-dischargeable debts before filing.

• Maximize exemptions to protect your assets while eliminating as much debt as possible.

At United Legal Advocates, our team of dedicated bankruptcy attorneys has a proven track record of helping clients achieve financial freedom. We understand the stress and uncertainty of overwhelming debt, and we’re committed to providing compassionate, expert guidance every step of the way.

Take the First Step Toward Financial Freedom

If you’re struggling with debt, bankruptcy may offer the fresh start you need. By discharging unsecured debts like credit card balances, medical bills, and personal loans, you can regain control of your finances and build a brighter future. However, the process is complex, and not all debts are eligible for discharge.

Don’t let uncertainty hold you back. Contact United Legal Advocates today for a free consultation. Our experienced bankruptcy attorneys will review your case, explain your options, and help you take the first step toward a debt-free life. Call us at 949-234-8212 or visit www.ulallp.com to schedule your appointment.

Dischargeable Debts in Bankruptcy

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Bankruptcy laws vary by state, and outcomes depend on individual circumstances. Always consult a qualified attorney for personalized guidance.

Posted on April 10, 2025, by ULA

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