People often misunderstand that once they have filed for bankruptcy, they are discharged of all their debts, or they are forgiven from paying all debts. This is not true. There are two types of debts, dischargeable debts, and debts that cannot be discharged.
This narrative driven blog will help you explore and understand more about dischargeable debts.
What is bankruptcy?
In simple words, bankruptcy is when a person or a company is no longer in a position to pay their debts while the creditors are still pressuring them to pay the dues. The individual or company announces in public that there is no money left to pay and that he/it is granted relief from harassment by the creditors.
The court sends a communication to the creditors of the applicant, to not pursue the matter any further related to the recovery of the amount from the debtor.
Are all the debts dischargeable in bankruptcy?
There are certain debts that the court allows the bankrupt person not to pay after filing for bankruptcy, while there are certain debts that he is required to pay even after the judgment. The debts that the court allows the person not to pay are known as dischargeable debts, while the obligations that he is required to pay are known as non-dischargeable debts.
Which debts are not discharged in bankruptcy?
The debts that are discharged in bankruptcy vary from case-to-case and from chapter-to-chapter of the bankruptcy code. According to chapter 11 of the bankruptcy code, where a business hopes to become profitable after a reorganization plan, the approved debts in the reorganization plan to be paid by the debtor become non-dischargeable debts while those debts that are not approved become dischargeable debts.
According to chapter 13 bankruptcy, an individual debtor or a small business owner, like a proprietorship business, is required to repay all debts within a period of three to five years in monthly installments. However, some debts like court fees and homeowner’s association fees can be discharged.
As per chapter 7 of the bankruptcy code, some common debts that can be discharged are credit card debts, unpaid taxes, bad checks, utility bills, court judgments, money owed on lease, and others. While debts that cannot be discharged are debts to government agencies, recent taxes, federal tax liens, and debts that debtors successfully challenge.
What is the most common category of debts that can be discharged?
Some of the most common categories of debts that are dischargeable are:
- Medical bills
- Personal loans from friends, family and employers,
- Utility bills (past due amounts)
- Dishonored checks ( if not based on fraud)
- Student loans
- Business debts
- Civil court judgments
- Social security payments
- Money owed in lease agreements
- Attorney fees
- Collection agency amounts
The above debts are dischargeable unless found that the bankrupt person has committed a fraud. However, all the chargeable debts are required to meet the timing for them to be successfully discharged
All debts that you have incurred before filing for bankruptcy are known as pre-filing debts. Among the chargeable category, the court will discharge only those dischargeable debts that you have incurred before filing the bankruptcy.
Post- filing debts
The bills that a person collects after filing bankruptcy paperwork are known as post-filing debts. These debts are non- dischargeable debts and are required to be paid by the person after the court order. For example, if you had filed for bankruptcy after which you continue to use your electric service, your bills for electricity before the date you applied for bankruptcy will be discharged, and the bills that you accumulate after filing will not be discharged.
Working for bankruptcy discharge
A bankruptcy discharge is a relief granted to the debtor from making outstanding payments to creditors when he is utterly incapable of paying. Working for bankruptcy discharge requires meeting the debtor’s specific requirements and the timing at which the bankruptcy is filed.
Usually, the court grants discharge as soon as possible, depending on the type of bankruptcy filed. For example, chapter 7 bankruptcies generally receive a discharge within four months from the date of filing. A chapter 13 bankruptcy discharge is given after the debtor clears all the payments due under the reorganization plan, which is 3-5 years.
Certain debts are exempt from discharge in a bankruptcy filing. In contrast, most of the debts are covered, provided there is no fraud involved or litigation involving objection to the discharge.
After all the requirements are complete, the court sends a copy of the communication to all creditors informing them of the discharge and that they should not attempt any collection of payment from the debtor by any means. The order also cautions the creditors that violations against the order may result in punishments.