Types of Debt Canceled in Chapter 7 Bankruptcy
Absent rare exception (like fraud), the following types of debt are typically discharged (canceled or forgiven) in chapter 7 bankruptcy:
- Credit Cards
- Medical bills
- Personal loans and personally-guaranteed business loans
- Pay day loans
- Civil judgments
- Vehicle loan deficiencies (the debt remaining after repossession)
Income tax debt can sometimes be canceled. Based on the bankruptcy filing date, you can discharge income taxes that last became due (based on the extension date) more than 3 years ago, were filed more than 2 years ago and were not assessed within 240 days before filing bankruptcy. Certain events can “toll” (extend) time periods. We review tax account transcripts line by line to determine if the debt can be canceled or not. Tax liens may survive the bankruptcy, though.
Secured debts (like auto loans and mortgages) are technically discharged, but filing chapter 7 bankruptcy will not remove the lien (the security interest). You must continue payment in order to keep the collateral (like the home or car).
If you have an abstract of judgment (which places a lien on your home) it may be removable by separate motion to the court.
Debts that are not canceled in bankruptcy
- Student loans (with very rare exception)
- Domestic support (child support or alimony)
- Debts to society for certain fines and criminal acts (such as DUI)
Debts that would otherwise be dischargeable (subject to cancellation) may be excluded from discharge if you hide property, commit fraud or otherwise fail to comply with the requirements of bankruptcy law.
In the end, bankruptcy is a privilege, not a right. We anticipate pitfalls and carefully prepare your bankruptcy petition to ensure you cancel the maximum amount of debt allowed.