The discharge is your objective in bankruptcy. The discharge means that the debts included in your bankruptcy cannot be collected from you ever again. The discharge is a little different in chapter 7 and chapter 13. Most debts are dischargeable in chapter 7; but, some people may get more benefit from a chapter 13. Additionally, the rules are a little different for debts like car loans and mortgages.
Chapter 7 Discharge
In most cases, the chapter 7 discharge is enough to get rid of all of your debts. Some of the debts discharged in chapter 7 are:
- Credit Card Debts
- Medical Debts
- Personal Loans
- Payday Loans
- Signature Loans
- Loan Deficiencies for foreclosures or car repossessions
- Lawsuits
- Personal Income Tax, if the return was due at least 3 years ago and you actually filed the return at least 240 days before filing chapter 7.
- Restore your driver’s license if you were are an underinsured motorist or you have traffic tickets more than 3 years old.
Chapter 13 Discharge
Chapter 13 bankruptcy discharges all of the same debts as a chapter 7, and it covers some of the debts that you can’t discharge in a chapter 7.
- Taxes that can’t be discharged in chapter 7 can be paid off through a chapter 13 plan. A chapter 13 plan lets you pay non-dischargeable back taxes first and still discharge your other debts.
- If you have traffic tickets that are less than 3 years old, they can be discharged and you can get your license back.
- If your house is completely underwater on the first mortgage, then you can discharge the second mortgage.
Secured Debts
A secured debt is something where a creditor has a lien on your property, for instance a mortgage or a car loan. In bankruptcy, the debt is discharged. But, you still have to make payments to the secured creditor if you want to keep the property. This is because a secured debt actually has two parts: 1) the debt, and 2) the lien. A lien is a property right that cannot be discharged in bankruptcy. So if you file bankruptcy and want to keep your car, you have to keep making payments.
There are a few cases where this is not true. If you file a chapter 13 bankruptcy, you may be able to do a cramdown or a strip off.
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