Bankruptcy is a legal procedure of seeking relief for your debts when you cannot manage them anymore. There are different types of bankruptcy you can qualify depending on your net worth and the kind of relief you are seeking. Dischargeable debts are those debts where your liability will be eliminated after filing the bankruptcy. Although bankruptcy is available for both personal finances and entities, not all debts will qualify for discharge. If you are considering bankruptcy, it is essential to consult a competent bankruptcy attorney. At Los Angeles Bankruptcy Attorney, we guide you through your bankruptcy and help you understand the type of bankruptcy that fits your situation.
Overview of Dischargeable Debt
A discharge in bankruptcy is an order which releases you from personal liability for a specific type of debt. Bankruptcy discharge comes at the end of the bankruptcy proceedings. After the discharge is issued, the creditors are not allowed to contact you or pursue you for the outstanding debt. However, bankruptcy discharges will bring you problems. This is because they lower your credit score, making it difficult for you to get credit in the future. Also, the discharge may deter your chances of getting a new job. The release for your debts is a permanent court order that must be respected by the creditors. However, you have to meet specific conditions before you are granted a discharge.
The timing of discharge for your debts will depend on the type of bankruptcy you filed. If the court grants you a chapter 7 bankruptcy, you will receive a debt discharge four months after the petition is filed. On the other had a chapter 13 discharge will be issued when you complete all payments after your plan, which is between three to five years. Even after your debts are discharged, the bankruptcy will stick to your record for seven to ten years depending on the type of bankruptcy you qualified.
When a discharge of your debts is granted, the clerk of the bankruptcy court will mail a copy of the order to all your creditors. Also, the attorneys of both parties will receive these documents. The notice indicates the final order of discharge that does not show the specific debts that are discharged. The notice will inform creditors that the debts you owed them have been discharged. Also, they may be subject to punishment if they attempt to collect those debts.
Not all debts are eligible for discharge. Valid liens on a specific property to secure payments that are not discharged will still be valid after the release. Most debts that are removed are often unsecured; therefore, any secured creditor has the right to enforce the lien and recover their property.
Dischargeable Debts in Bankruptcy
Most non-priority unsecured debts will receive no special treatment in bankruptcy. Unless your creditors can prove that you obtained the obligations by use of fraud and pretense, most non-priority debts can be discharged in Chapter 13 and Chapter 7 bankruptcy. The most common non-priority unsecured debts that you may discharge include:
Medical Bills Debts in Bankruptcy
Having substantial unpaid medical bills is one of the main reasons why people file for bankruptcy. After registering for a bankruptcy declaration, your debts will be put into different categories. Some of these debts are given special treatment and cannot be relieved through bankruptcy. Fortunately, for you, medical bills are not one of these debts since they are considered as part of unsecured debts. You may be able to eliminate the medical bills depending on the type of bankruptcy you are filing.
If you file and qualify for Chapter 7 bankruptcy, all your medical bills together with other unsecured debts will, be discharged. There is no limit to the number of medical bills that can be eliminated in Chapter 7 bankruptcy. However, your disposable income must pass the means test so you can qualify for this type of bankruptcy. Medical bills that were paid using credit cards will also be eliminated upon the declaration of Chapter 7 bankruptcy.
In Chapter 13, your medical bills will be grouped with other unsecured debts that you owe. As you design a repayment plan, these bills will be included in the plan. Each creditor will then receive a portion of the amount intended for these debts. Chapter 13 bankruptcy has a limit for the number of debts that can be discharged. If your medical bills exceed the allowed limit, you may not be eligible to release in this type of bankruptcy.
Credit Card Debts
If you have racked excessive credit card debt, you can file for bankruptcy in an attempt to eliminate this debt. Chapter 7 bankruptcy wipes out most of your unsecured debts. Unsecured debt is not tacked by any property collateral and is not entitled to a particular treatment. However, the property that is not protected will be sold to distribute the returns to your creditors.
In Chapter 13 bankruptcy, you are expected to repay your creditors through a repayment plan that lasts three to five years. The amount you will pay depends on the amount of disposable income you have. After a successful filing of Chapter 13 bankruptcy, you will be expected to pay a small percentage of your credit card debts. At the end of the repayment period, which is often three to five years, the remaining credit card debt will get discharged.
In some circumstances, the creditor may challenge the discharge of your credit card debts. If the creditors are successful, then you will be held responsible for paying those debts. The following are some of these situations:
- You charged an amount exceeding $725 for a luxury item within 90 days of filing for bankruptcy. The court may assume that you intended to defraud the creditors.
- You made a pretense to defraud the creditors during the credit card application, and the statements were material. If the credit card based on their decision to giving you credit on these statements, the debt might not be eliminated in bankruptcy.
- You got a cash advance amounting to $1,000 or more within the last 70 days of filing for Chapter 7 or Chapter 13 bankruptcy
Also, a credit card lender may decide to take a security interest in some of your assets in the credit card agreement. In this case, the credit card debt is not unsecured and cannot be wiped out during bankruptcy. If you are applying for a credit card debt discharge, consider hiring a bankruptcy attorney
Utility Bill Debts
If you have been paying your utility bills, you can eliminate these debts by filing a Chapter 7 bankruptcy. The utility bill debts are group together with other unsecured debts in a discharge. In Chapter 13 bankruptcy, you will be required to include utility bill debts in your repayment plan. A release on past utility bills does not affect future payments. After bankruptcy, you should continue paying your regular utility bills.
Lawsuit Judgment Debts
If your creditors file a lawsuit against you and the debt you owe is dischargeable, filing for bankruptcy will help you clear that debt. However, it is essential to understand that judgments may create a lien on your property, which does not go away. When the creditor attaches a lie to your property or other assets, they will get paid from the proceeds of selling that property. Fortunately, you can file a motion to avoid liens of your property during bankruptcy proceedings.
Also, there are other ways through which you can get rid of the lie on your property. You can avoid the lien as long as you did not give consent for the creditors to use your property as a lien. However, you must prove the following conditions to qualify for lien avoidance:
- You must verify that you have property equity which you can claim exemption against
- The lie came from money judgment that was issued against you, and you did not consent to the lien as part of a settlement.
- The judgment lien takes away all the equity you would have exempted.
To avoid a lien, you need to file a motion of avoidance as soon as your bankruptcy case closes. If you have more equity to property than what you exempt, your creditors may contest your claim. Discharging lawsuit judgment debts may be complicated, and you will need guidance from an attorney.
Certain Tax Debts
If you want relief from tax debt, filing a chapter 7 bankruptcy may be the best option for you. However, the following conditions must be valid for you to discharge these debts:
- You have not committed fraud. Individuals who fraudulently filed for bankruptcy or attempted to evade tax cot relieve their tax debts by declaring bankruptcy.
- The taxes must be income tax. Payroll taxes and fraud penalties cannot be eliminated in bankruptcy.
- You filed your tax returns. If you wish to discharge your tax debts in bankruptcy, you must have filed your returns in the past two years. A late filing of tax returns will not be considered when eliminating the tax debts.
- The returns must have been due at least three years before you filed for bankruptcy to discharge tax debt in bankruptcy
- You pass the 240-day rule. Your income tax must have been assessed at least 240 days before filing for bankruptcy. However, bankruptcy will not wipe out prior tax lies that are on the record.
Dischargeable Debts Specific to Chapter 7 Bankruptcy
The process of bankruptcy filing can be emotionally and financially draining. Chapter 7 bankruptcies are no-asset cases since you will have no property that can be sold to pay the debts. Dischargeable debts, in this case, are eliminated without giving anything to the creditors. The discharge will exclude your liability to these debts but not the lien on your property.
Most unsecured debts can be discharged in a Chapter 7 bankruptcy. Unsecured debts are obligations which are tacked by collateral. If you did not agree with the creditor on the status of the property you purchased, the debts would be unsecured. Some of the most common unsecured debts which are eligible for discharge are utility bills, medical bills, personal loans, and credit card debts.
Also, some secured debts can be eliminated in Chapter 7 bankruptcy. If you don’t need a secured property, it would be wise to let the creditor repossess the property. This is because the lien on the property remains and failure to repay the debts, your property may be taken away. To give back the property to the creditors, you should indicate your intent to surrender the property together with your bankruptcy paperwork. If the creditor has not taken a security interest in the property, you may be able to keep it.
Debts you can only Discharge Chapter 13 Bankruptcy
Chapter 13 bankruptcy, commonly known as the wage earners bankruptcy allows you to retain ownership of your property. In this type of bankruptcy, you are allowed to catch up on mortgage and loan repayment through a structured repayment plan. However, you are expected to make a repayment plan of three to five years to pay your debts. The repayment plan will indicate what obligations you are supposed to pay and the ones that are discharged. Chapter 13 is a bankruptcy preferable if you want to keep your property.
When filing a chapter 13 bankruptcy, you will want to understand how to divide your debts into the secured. Most of the unsecured debt is what you can discharge in this type of bankruptcy. In Chapter 13 bankruptcy, you will be able to eliminate more debts than those you could get in chapter 7. If you are hoping to file for a debt discharge in a Chapter 13 bankruptcy, it is crucial to consult an experienced bankruptcy attorney to guide you through.
The following are some debts you can eliminate in Chapter 13 but not a chapter 7 bankruptcy;
- Fines and Penalties you owe to the government.
The government can penalize or fine you if you commit an offense according to the law. These laws help keep society peaceful. When you file for bankruptcy, these penalties and fines will be caught as one of the debts you owe. In Chapter 7 bankruptcy, you will not be able to discharge these fines and penalties. Chapter 13 will allow you to eliminate some fines and penalties from the government. However, the only penalties you can discharge are those that are not related to criminal charges or those meant to punish you.
- Post-petition Homeowners fees
Filing a Chapter 13 bankruptcy allows you to get relief from condominium and homeowners’ association dues you may have incurred after your bankruptcy filing date. Despite your discharge, the HOA will still have a lien on your property for all fees you haven’t cleared. If you do not continue paying what you owe to the HOA, you may end up losing your house.
- Debts That Were Denied a Discharge in a Previous Bankruptcy
If you had filed for bankruptcy previously and the court denied you a discharge, you will not be able to eliminate those debts in a subsequent Chapter 7. However, a Chapter 13 will allow you to discharge debts from a previous bankruptcy.
- Retirement Account Loans
The money you get from your retirement plan is considered a debt you owe to yourself. Such liabilities can get discharged in a Chapter 13 bankruptcy. However, if you continue to pay your loans during the bankruptcy, you can reduce your disposable income. Therefore, it would be wise to continue paying your retirement loan payments in Chapter 13.
- Debts incurred during Separation and Divorce Proceedings
If you suffer debts from the divorce decree, separation agreement, property settlement, or other related charges after a divorce, you can discharge them in chapter 13 bankruptcy. However, domestic obligations such as spousal support and child support cannot be discharged in any bankruptcy. Also, if you incur costs while trying to settle the non-dischargeable debts, you can eliminate the debt in a Chapter 13 bankruptcy.
- Debts That Arise from Malicious and Willful Damage of Property
If you maliciously or willfully damage another person’s property, you are indebted to them for those damages. Any of the debts that arise from malicious and willful damage of property can be discharged in a Chapter 13 bankruptcy. However, if your malicious and wilful actions led to severe bodily injury or death, you cannot release the debts with Chapter 7 or 13 bankruptcy.
Find a Bankruptcy Attorney Near Me
Filing for bankruptcy is a significant decision that affects your facial and personal life. It is essential to understand what your bankruptcy of choice will do to solve your financial difficulties. When you receive a discharge of your debts during bankruptcy, you are not obliged to pay these debts. Also, your creditors have no right to come after you. For a better understanding of the obligations, you can discharge during bankruptcy, contact an attorney from Los Angeles Bankruptcy Attorney. If you are in Los Angeles, CA, call us today at 424-285-5525 and allow us to guide you through this challenging process.