Most people file for Chapter 7 bankruptcy to discharge (wipe out) debt. Although some debts are "nondischargeable" and don't go away in bankruptcy, Chapter 7 will erase many obligations, the most common being medical and credit card debt.
In this article, you'll learn:
Learn more about what bankruptcy can and cannot do.
A bankruptcy discharge releases individual debtors from personal liability for the debt and prevents the creditor owed that debt from taking any collection actions against the debtor. In other words, the debtor is no longer legally required to pay any discharged debts. Most Chapter 7 filers automatically receive a discharge about four months after filing the bankruptcy petition.
Below is a list of commonly discharged debts.
Note about fraud and utility deposits. Any debt-related misconduct or fraud can render an otherwise dischargeable obligation nondischargeable. Also, a utility provider cannot refuse to provide service because of a bankruptcy filing; however, the provider can charge a reasonable deposit to ensure future payment. Find out about utility shut-offs and Chapter 7 bankruptcy.
It's not just the type of debt that matters. When you incur the obligation comes into play, too. Here's how it works.
In short, only debts arising before the Chapter 7 filing date get discharged. You'll be responsible for any debt you incur after filing your petition but before receiving a discharge.
Example. Jessica fell behind on her electric bill before she filed for bankruptcy. Per requirements, she listed the debt with all of her other obligations in her bankruptcy schedules. After filing, she continued to use her electric service. At the end of her case, the energy charges that predated her bankruptcy filing date were wiped out. However, she had to pay for her post-petition electricity use from the filing date forward.
When you file for bankruptcy, you must organize your debt into categories. If money is available to pay creditors, the trustee will pay some before others, depending on whether it is a secured claim, a priority unsecured claim, or a nonpriority unsecured claim. The highest-ranking claims get paid before lower-ranking debt.
For instance, "priority" debt gets special treatment—it's paid first. Domestic support obligations and tax debt are common examples. You'll remain liable for many types of priority debt after a Chapter 7 bankruptcy case.
Bills you can discharge usually fall into the "nonpriority unsecured" debt category. (Unsecured debt isn't guaranteed by collateral. By contrast, a home mortgage or car loan is an example of secured debt.) But a few nonpriority unsecured debts don't get wiped out. For instance, you won't be able to get rid of student loan balances in bankruptcy unless you file a separate lawsuit and prove that you satisfy stringent standards.
When you fill out the bankruptcy paperwork, you'll list both priority and nonpriority unsecured claims on official form E/F: Creditors Who Have Unsecured Claims—and you can use the form to help you understand the different types of debt.
Learn more by reading Types of Creditor Claims in Bankruptcy: Secured, Unsecured & Priority. You'll find a nondischargeable debt list in What Is the Difference Between Dischargeable and Nondischargeable Debts in Bankruptcy?
Although a debtor is not personally liable for discharged debts, a valid lien that has not been avoided (made unenforceable) will remain in the bankruptcy case. For instance, if you don't make arrangements to continue paying your car payment by signing a reaffirmation agreement, the discharge will wipe out your obligation to pay the car loan; however, you won't get to keep the car. The lender will use its lien rights to repossess the vehicle.
If a creditor calls you after you file bankruptcy, providing your case number and the filing date will likely stop the calls cold. Finding your filing date is easy to do. Pull out any bankruptcy document from the court. (You'll get copies of all notices, even if a lawyer represents you.) The filing date will appear at the top of the page next to your case number.
A creditor can quickly verify your bankruptcy using the information, and if the calls don't stop, the creditor will be subject to sanctions. Find out more in What happens if a creditor tries to collect a debt during my bankruptcy?