Which Debts Are Discharged in Chapter 7 Bankruptcy?

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:

• how a Chapter 7 discharge will eliminate bills
• what you can expect to erase in Chapter 7, and
• how to classify debt in bankruptcy paperwork.

Learn more about what bankruptcy can and cannot do.

What Is a Discharge and How Does It Work?

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.

Which Debts Are Dischargeable?

Below is a list of commonly discharged debts.

• credit card charges (including overdue and late fees)
• collection agency accounts
• medical bills
• personal loans from friends, family, and employers
• utility bills (past due amounts only)
• dishonored checks (unless based on fraud)
• student loans (only in the rare circumstance that you can prove undue hardship)
• repossession deficiency balances
• auto accident claims (except those involving drunk driving)
• business debts
• money owed under lease agreements (includes past due rent)
• civil court judgments (unless based on fraud)
• tax penalties and unpaid taxes past a certain number of years
• attorney fees (except child support and alimony awards)
• revolving charge accounts (except extended payment charges)
• social security overpayments, and
• veterans assistance loans and overpayments.

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.

Timing of Dischargeable Debt

It’s not just the type of debt that matters. When you incur the obligation comes into play, too. Here's how it works.

• Pre-filing debt. A pre-petition debt is an obligation incurred before the day that you file for bankruptcy. At the end of your case, the bankruptcy court will discharge all qualifying pre-petition debt, such as credit card balances, personal loans, and medical debt.
• Post-filing debt. The bills that you rack up after submitting your initial bankruptcy paperwork are post-petition debt. You remain responsible for paying for balances that you incur after the initial filing date. So you can incur new debt even though your case isn’t over.

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.

Priority and Nonpriority Unsecured Debt

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?

Most Liens Will Remain on Property

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.

Stop Collection Calls After Your Bankruptcy Case

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?