Does bankruptcy clear all of my bills?
Many individuals own a home and car, pay insurance premiums, have medical bills, high credit card bills, personal loans, and monthly bills such as a cable, electric, gas, water and telephone. Recently an individual asked whether filing bankruptcy would automatically wipe out all of their bills or debts listed above; the answer is no.
Bills, Chapter 7, and Chapter 13 bankruptcy
Chapter 7 bankruptcy is the most common bankruptcy filed. Chapter 7 bankruptcy will eliminate a variety of unsecured debts, including unsecured personal loans, medical debts, and credit card bills. Chapter 7 bankruptcy may also eliminate unpaid electricity, water and gas or other utility bills, but if you want to re-establish services with the same utility company after filing bankruptcy, you may be required to give a large deposit.
Chapter 7 bankruptcy does not, however, eliminate secured debts including car, boat, home or any debt secured by an asset. If you have secured debts and you fail to make the payments, the creditor will simply come and repossess the property and sell it to recoup some of their lost profits.
For example, if you own a car and you do not make the car payments the creditor will send someone to reclaim the car and sell it at auction. You might even owe a deficiency payment for the car, which is the amount you owe less the amount they received from the buyer at auction.
Chapter 13 bankruptcy
If you file Chapter 13 bankruptcy debts are not discharged immediately, but you are required to create a three or five year repayment plan to repay a portion of your debts. If you have certain debts which have not been repaid at the end of the payment plan, these debts are discharged, but this does not include secured debts such as a home mortgage, which you would continue to pay.
Will all of my unsecured debts be discharged in bankruptcy?
Before you file Chapter 7 or Chapter 13 bankruptcy it's important to note that many types of unsecured debts are also not discharged. For instance, if you file bankruptcy you will not receive a discharge for federal student loans (exemptions for undue hardship), recent tax debts, child or spousal support payments following a divorce or court judgments for DUI offenses.
Should I file Chapter 7 or Chapter 13 bankruptcy to clear my bills?
Before deciding if Chapter 7 or Chapter 13 bankruptcy is right for you it's important to understand what bankruptcy can and cannot do and what will happen to your debts. For instance, if you have $35,000 in student loans, you owe $10,000 in child support payments and $20,000 in recent tax debts, bankruptcy may not do anything for you.
If, however, you have $35,000 in medical bills, $13,000 in credit card debt, your house is about to be foreclosed on and your wages have been garnished, bankruptcy may offer a good financial solution for you. Talk to a lawyer if you have questions about your bills and your ability to have them discharged.
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