What Debts Are Forgiven In Bankruptcy

While bankruptcy can provide significant debt relief for many consumers and business owners in the U.S., it is not a magic wand that immediately makes all of your debt obligations disappear. Instead, the law only allows courts to discharge certain types of debts in Chapter 7 bankruptcy. However, depending on the type of debts you have, bankruptcy can still provide a fresh start for many people. If you would like to discuss whether bankruptcy is right for you, please consult with a California bankruptcy attorney at Miranda, Magden & Miranda, LLP today. 

How Debts are Forgiven

A “discharge” of debts by the bankruptcy court means that the court issues an order stating that you are no longer obligated to perform on your contract with your creditors. Because you are no longer liable for these debts, your creditors are not legally able to try to collect payment from you. The system forgives these debts, so you can move forward with as clean of a slate as possible – though some people find that not all their debts are able to be discharged.

Dischargeable Debts

First, debts can only be discharged if they were incurred prior to the date of your bankruptcy filing. If you incur bills after you file your petition, you are responsible for paying those. When it comes to pre-filing debt, most unsecured debts are dischargeable. This means that a debt is not secured by collateral, such as a home or a vehicle. Some commonly discharged debts include:

• Credit cards, including interest and late fees
• Other revolving credit account balances
• Medical bills
• Accounts with collection agencies
• Personal loans from banks, family, employers, or friends
• Debts of a sole proprietorship or partnership
• Past due rent
• Past-due utility balances
• Certain unpaid taxes and tax penalties
• Civil legal judgments, as long as they do not stem from fraud (not including family support orders)
• Accident and injury claims (unless they claim stemmed from drunk driving)
• Veteran assistance overpayments and loans
• Social Security benefit overpayments

In rare cases, filers might be able to have student loans discharged, though the requirements for this are strict. An attorney can evaluate your situation and advise you of the possibility of discharging student loan debt. 

Even though not all of your debts might be discharged, bankruptcy can still eliminate significant payment obligations. You can stop worrying about your discharged debts and, instead, focus on how to use your freed-up funds to stay current on your remaining debts. 

Discuss Your Situation with a California Bankruptcy Lawyer

The discharge of most of your debts is the goal of a successful bankruptcy case, and this generally happens four to six months after you file for a Chapter 7 case. This means that the sooner you get the process started, the sooner you can find a solution for your debt concerns. At the law firm of Miranda, Magden & Miranda, LLP, we navigate the bankruptcy system for our clients. Contact us to learn more about your options.