Many people turn to Chapter 7 bankruptcy for debt relief as it provides a fast solution for debt problems. While this branch can help with some debts, it does not typically discharge all of the debts a person owes. Here is a breakdown of how Chapter 7 treats most debts, which is helpful to know if you are considering using this branch of bankruptcy.
It Discharges Some Debts
People that use Chapter 7 bankruptcy often owe a lot of money to creditors for unsecured debts. Unsecured debt is an obligation that does not have collateral. The best example is a credit card bill. If you owe credit card companies, these debts will almost always result in a discharge through Chapter 7. There are exclusions, but most people receive total debt forgiveness on credit card bills. Medical bills also fall into this category. Many people file Chapter 7 if they owe thousands of dollars to healthcare providers. These debts also generally receive a total discharge. You can also receive a discharge on other debts, such as personal loans.
It Does Not Discharge Others
Chapter 7 does not provide a discharge for other debts, though. For example, if you owe money for child support, you cannot receive forgiveness of this debt. Chapter 7 does not discharge priority debts, such as child support or alimony. You will also not receive a discharge on your mortgage debt if you plan on keeping your house. The same is true for a car that you owe money on when filing.
Some Debts Might Qualify in Certain Cases
You might also want to know about some debts that might qualify for a discharge. IRS tax debt is an example of a debt that sometimes qualifies for a discharge. In most cases, though, it does not. For you to receive a discharge on IRS tax debt, you must meet specific guidelines. Another example of a debt that sometimes qualifies for a discharge is student loan debt. Again, this debt does not typically qualify for debt forgiveness in Chapter 7 cases, but there are times when it might.
Now that you understand these basic principles of Chapter 7, you can review your debts to see what categories you have. If you feel that Chapter 7 would help you when filing for bankruptcy, schedule a consultation visit with a local bankruptcy lawyer. A bankruptcy lawyer can provide you with additional information.