What Debts Are Dischargeable In A Personal, "Chapter 7" Bankruptcy?
One great New Year's tradition is the making of "New Year's Resolutions." According to Forbes, one of the top financial resolutions is to pay off debt, which was mentioned by 16% of the respondents in the magazine's survey, followed by 11% of the respondents who wanted to "pay down" (or reduce) credit card debt. A related finding was that more than 1 in every 3 respondents pledged to improve their financial well-being in 2016.
But what if your personal situation is such that your prospects for getting out of debt are very dim? If you are an individual, you might be able to get some relief by filing a Chapter 7 bankruptcy. Here are some basics about what debts are dischargeable in a Chapter 7 bankruptcy that you need to know if you are considering filing a Chapter 7 case.
First, federal law governs bankruptcy cases. That means that bankruptcy cases, including Chapter 7 cases (which can only be filed by individuals as opposed to corporations or other artificial bodies), are heard by federal judges known as "bankruptcy judges" because bankruptcy law is a bit of a specialty.
Next, when the goal of a Chapter 7 case is to obtain a "discharge" of debts. According to uscourts.gov, a Chapter 7 debtor who wins a "discharge" obtains a court order that forbid his creditors from taking any action to collect the debt at issue. Creditors who violate that order by persisting to contact the debtor, whether by phone or mail or email, risk being found to have violated the court's order, which is a pretty serious thing.
However, the effect of the discharge is limited to the debtor's "personal" liability. What that means is that a creditor that holds a lien on your property – such as a lender that holds a mortgage on your house – can still enforce the lien against the property itself. Still, for a debtor whose main problem is credit card debt, a Chapter 7 case can provide a lot of relief because credit card debt typically does not create a lien on a debtor's property.
But before you conclude that a Chapter 7 will relieve you of all of your credit card debt, there are some other provisions of law that will affect the scope of the discharge order. Those provisions are found in section 523 of Title 11 of the U.S. Code and are generally referred to as "exceptions to discharge." For example, a debtor cannot win a discharge of a debt owed on account of improper behavior by the debtor that results in an obligation, such as drunk driving. Discharge of domestic obligations like alimony and child support is also subject to special, fairly complicated provisions. The same goes for student loan debt and for certain debts for "luxury goods" that were incurred within 90 days of the filing of the Chapter 7 petition.
How can you know if your financial situation is such that you can reasonably expect to win a discharge of most if not all of your debts? Our firm has substantial experience in guiding our clients through Chapter 7 bankruptcy cases so contact us to discuss whether a Chapter 7 filing would be a good strategy for meeting your New Year's resolution to reduce your debt.