Chapter 7 bankruptcy erases or "discharges" credit card balances, medical bills, past-due rent payments, payday loans, overdue cellphone and utility bills, car loan balances, and even home mortgages in as little as four months. But not all obligations go away in Chapter 7.
In this article you'll learn:
Once you understand more about discharging debts in bankruptcy, you'll likely find that using Chapter 7 to eliminate debts you're struggling to pay is just what you need to get a fresh financial start.
A bankruptcy discharge is an order issued by the bankruptcy court that breaks the contract between the bankruptcy filer and a creditor. Without the contract, the filer isn't legally required to pay the discharged debt, and the creditor can't take collection actions.
However, the debt won't disappear entirely. The bankruptcy filer's credit report will show the debt "discharged in bankruptcy" for up to ten years, although the notation's impact on the debtor's credit score will lessen over time.
Most Chapter 7 filers receive a discharge order about four months after filing the bankruptcy petition.
Chapter 7 filers discharge all of the following debts (a Chapter 13 discharge erases a few more):
You can use our list to get a general feel for whether you're a potential Chapter 7 candidate, but it's best to review your particular debts with a bankruptcy lawyer. Why? Because you might have dischargeable debts that don't appear above.
As much as we'd like to, we can't create a list that includes all dischargeable debts because bankruptcy law doesn't tell us the debts you can discharge. Instead, the law tells us the debts you can't erase in bankruptcy, which we cover in "Chapter 7 Bankruptcy Doesn't Clear All Debts" below.
Note about fraud and utility deposits. Any debt-related misconduct or fraud can turn a dischargeable obligation into a nondischargeable debt. Also, a utility provider can't refuse to provide service because of a bankruptcy filing but can charge a reasonable deposit to ensure future payment.
Find out about utility shut-offs and Chapter 7 bankruptcy.
Your Chapter 7 bankruptcy will discharge debts you had before filing but not after. Not even debts you incurred after filing but before you received your discharge. Here's how it works.
In short, the bankruptcy court discharges debts that existed before the Chapter 7 filing date. You'll have to pay for anything you get on credit after filing your petition, even bills you incur before receiving a discharge.
Example. Jessica fell behind on her electric bill, listed the balance in her Chapter 7 bankruptcy schedules, and continued to use her electric service. After receiving her Chapter 7 discharge, the energy company deleted the charges predating her bankruptcy filing and billed her for the electricity she used after her bankruptcy filing date.
The discharge order won't list the debts you wiped out in Chapter 7. Instead, it will list the debts that bankruptcy law says all filers remain responsible for paying. You'll stay on the hook for the following:
You'll find a more detailed list of nondischargeable debts in What Is a Bankruptcy Discharge? If you'd like more information about classifying debts in bankruptcy, consider reading Types of Creditor Claims in Bankruptcy: Secured, Unsecured & Priority.
Bankruptcy clears you of the responsibility to pay a mortgage, car loan, or another secured debt automatically. Bankruptcy doesn't remove a lien giving the creditor the right to take property if you don't pay.
For instance, you'll lose your car if you don't continue paying your car payment informally or sign a reaffirmation agreement. The lender can use its lien rights to repossess it during the Chapter 7 case after asking the court to lift the "automatic stay" order preventing collection efforts, or wait until the Chapter 7 case ends.
You can stop most creditor calls cold by providing your bankruptcy case number and filing date. Start by finding a filed bankruptcy document or notice. You should have one handy because you get copies of all mailings, even if a bankruptcy lawyer represents you. The filing date will be next to the case number at the top.
Why will this work? The creditor can use the information to verify your bankruptcy, and if the calls don't stop, the creditor will be subject to sanctions. Find out more about what happens if a creditor tries to collect a debt during your bankruptcy.
Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.