If you have debts that you cannot pay off, bankruptcy can offer you relief. But before you go through with a filing, you may want to understand how the process can help you. And if you file a Chapter 7 bankruptcy, one of the most significant benefits is the discharge of debts.
By wiping away what you owe, a discharge lets you start over and rebuild your finances. But while most of your debts will vanish, some are not eligible. So what will a Chapter 7 bankruptcy clear away from your unpaid amount?
Unsecured payments can disappear
After you file for a Chapter 7 bankruptcy, the court will determine what you can liquidate to pay off balances. Once that is complete, the judge will forgive any unsecured debt that qualifies for discharge. This may include:
- Personal loans
- Credit cards
- Medical bills
- Lawsuit judgments
- Unpaid rent
The court can easily wipe away these types of bills because they do not have any collateral backing them.
What is ineligible for discharge?
While getting rid of so much debt can feel liberating, some types don’t qualify for the bankruptcy discharge. Secured debts, like house mortgages or car loans, have collateral, meaning the bank has something to take back if they don’t receive payment.
Courts exclude other debts due to their protected status. These include:
- Student loans (with some exceptions)
- Child and spousal support
- Lawsuits for injury to persons or animals
- DUI judgments
- Any debt not listed in in the bankruptcy filing
While you are still responsible for these bills, the discharge can free up what you owe to other creditors. You may find paying down these ineligible debts easier.
A bankruptcy discharge lets you build a healthier financial future
Bankruptcy can offer you an opportunity to start over with your bills. By clearing away a large chunk of your debt, a discharge can give you more breathing room to save money and rebuild your credit.