Bankruptcy: What types of debts are dischargeable?

People who have no other means to regain their financial stability due to insurmountable debt may choose to file for bankruptcy protection. Though it is one of the major setbacks for a person both financially as well as socially, yet it is a widely accepted form of debt help. A person will be able to begin a fresh financial journey after the bankruptcy case is over. Bankruptcy cases usually last for a period of 1-3 years. Debtors are bound to make monthly payments to the creditors. In case a debtor fails to make a single payment, then he may have to face a lawsuit filed by the creditors.

Under bankruptcy, only selected types of debts are discharged. A person should know about all the dischargeable debt before choosing bankruptcy.

Dischargeable debts in bankruptcy

Bankruptcy discharges or writes off almost all the unsecured debts, barring a few. For example, delinquent bank overdrafts and the likes are written off under bankruptcy. Moreover, bankruptcy does not write off secured debts. Here are some of the bankruptcy dischargeable debts:

A. Credit card debts – Bankruptcy discharges credit card debts. Generally, credit card debt is an unsecured debt. However, credit card issuers may have difference of opinion on the bankruptcy petition. On the other hand, credit card issuers may take back any item bought during the bankruptcy proceedings. For example items like jewelry, gadgets and other goods can be repossessed by the creditors.

B. Medical debts – Many people are forced to declare bankruptcy because they had piled up huge hospital and other treatment bills. This may happen due to sudden untoward incident like car accident or fatal disease. Medical institutions like hospitals, medical centers and other private medical service providers can be involved in a bankruptcy case. A person should document each and every debt so that it gets properly discharged during the bankruptcy proceedings.

C. Tax debts – A person who owes tax debt can include it in his bankruptcy case. Tax debts can be of federal, state or local type. It should be more than 3 years old, in order to get them discharged. People who file Chapter 13 bankruptcy will have to pay a part of the tax debt. On the other hand, Chapter 7 filers enjoy complete exemption from such tax debts. However, tax debts that are less than 3 years of age are not exempted and needed to be cleared in full, irrespective of the type of bankruptcy. Self-employed professionals who have tax dues that are owned by the HM Revenue and Customs are eligible to be written off in a bankruptcy case. This is because it is a personal tax debt.

Moreover, Council tax and utility debts like gas, electricity bills are also waived off in bankruptcy. It should be noted that debts like child support, alimony, federal student loans, government fines and so on are ineligible for discharge under bankruptcy. Thus bankruptcy act as the greatest debt help for critically insolvent people.

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