Chapter 7 personal bankruptcy laws allow Americans who are overburdened by bills to have many types of debt legally discharged; they are simply wiped away and you are provided with a fresh financial start. Most debts included in a bankruptcy proceeding can usually be discharged unless they fall under one of the exceptions listed in the bankruptcy code.
Unsecured Debts Are Usually Discharged
Most types of unsecured debt can be discharged through personal bankruptcy. An unsecured debt is one that is not attached to an item of property that guarantees payment through the possibility of foreclosure or repossession. The most common types of unsecured debts that people discharge through personal bankruptcy are credit card bills, personal loans, payday loans and medical bills. These are the most common types of debt that plague most consumers and their discharge allows individuals to live comfortably again without fear of creditors and their collection agencies.
Secured Debts Are Optional
Secured debts include items you have financed, such as a car or a house, which were used as collateral to secure financing by giving the creditor the right to take the item back if you stop paying. If you want to keep the collateral, such as your vehicle or home, you have to continue payments and reaffirm the debt in the bankruptcy. You also have the option of getting out of the debt by surrendering the collateral.
Taxes and Student Loans
Federal income tax obligations may or may not be dischargeable under bankruptcy, depending upon the status of the tax delinquency and several other factors. In most cases, taxes are not dischargeable under Chapter 7, but may be repaid, usually without interest or penalties, in a Chapter 13 Wage Earner Plan. Student loan debt does not go away in a Chapter 7 unless you can establish extreme hardship due to factors such as disability or other inability to work.
Bankruptcy Stops Garnishments and Lawsuits
Personal bankruptcy will stop any garnishments that result in money being deducted from your paychecks. The underlying debts that caused the garnishment may or may not be discharged, however. Unsecured debts will likely be discharged, while debts arising from unpaid child support or alimony won't be discharged. Court judgments and lawsuits against you that do not involve intentional infliction of personal injury, intentional property damage, or drunk driving will usually be wiped out by Chapter 7 bankruptcy.
The law surrounding discharge of debts in personal bankruptcy is complicated and each case is unique. For more detailed and case specific information, please contact our Tacoma bankruptcy lawyers at Washington Fresh Start for a free initial consultation.