A Chapter 7 bankruptcy is popular among consumers due to the relatively swift discharge of many debts. Unlike Chapter 13, under Chapter 7 a debtor need not file a repayment plan to discharge debts. In lieu of a payment plan, the bankruptcy trustee may sell some non-exempt assets to satisfy debts. Other assets may be subject to security liens, such as property mortgages, and those debts may require that the secured properties be sold to satisfy the liens or mortgages. However, in many cases, the vast majority of a debtor’s unsecured assets will be discharged under Chapter 7.
The Chapter 7 discharge relieves the debtor of responsibility to pay discharged debts and halts creditors from attempting to collect on those debts. With the exception of secured creditors, who might retain rights to seize secured property, unsecured debts generally are discharged fairly quickly in a Chapter 7 case. If a debtor wants to retain secured property, such as an automobile, it is possible to reaffirm the debt, meaning the debtor and creditor will enter a formal agreement where the debtor continues to make payments for the vehicle. In the absence of such agreements, the discharge of other debts may free enough funds for the debtor to catch up on payments.
What Debts Cannot Be Discharged in Chapter 7?
Certain debts cannot be discharged in Chapter 7. These include:
- Some back taxes – This includes certain disqualified income taxes, Social Security taxes, tax penalties or, for businesses, unpaid withholding tax for employees
- Child support and alimony
- Student loans – Normally, these cannot be discharged, but if you can show that you cannot afford to repay your student loans due to true financial hardship and are unlikely to be able to do so in the future, the court may consider discharging student loan debt
- Home mortgages and other property liens – A Chapter 7 case will not discharge secured loans such as mortgages and liens on your property
- Debts from fraud, embezzlement, larceny, or from “willful and reckless acts”
- Automobile loans
- Debt that doesn’t belong to you – You cannot discharge debt that actually is in the name of your ex-spouse, child, or another person other than you if you file for an individual bankruptcy
- New credit card debt – You can’t run up credit card debt on luxury purchases right before you file for bankruptcy and expect to get rid of it. Courts will disqualify such debts from discharge
If You Have Questions About How Bankruptcy Can Help You in Salt Lake City, Call Jory L. Trease of JLT Law to Discuss Your Options
If you experience financial difficulties and must consider filing for bankruptcy, you need to understand how bankruptcy laws can work for you. A Chapter 7 bankruptcy could provide considerable relief from financial pressures. Take advantage of a free case evaluation to determine if an attorney can help you through the bankruptcy process. JLT Law can help, so please call our office at (801) 896-9444 or use our online contact form.