When I first meet with a potential client, we discuss what debts are non-dischargeable debts under the bankruptcy code and what debts bankruptcy can help with. This is often the part of the consultation where we discuss the reason driving the client to file bankruptcy and the goals of the case. Bankruptcy can help with the client’s debts in most cases, but with certain debts the help is not in the form of a discharge of the obligation entirely.
What debts can bankruptcy help with?
Unsecured debts are debts that do not have collateral to look toward if the clients stops paying on the balance. These debts outside of bankruptcy could confiscate paid off cars, garnish wages, and/or freeze bank accounts for payment through a lawsuit and judgment. Unsecured debts in a chapter 7 bankruptcy often do not receive any payment. In a chapter 13 bankruptcy, this class of creditors often receives pennies on the dollar before the remainder of the obligation is discharged.
Unsecured Debts that can be discharged in bankruptcy:
- credit cards
- hospital bills
- home or investment property foreclosure deficiencies
- repossession deficiencies
- business guarantees
- IRS tax penalties
Secured Debts are obligations where if you stop paying the lender, the creditor/lender can repossess the collateral. The personal obligation can be discharged leaving only the lien for the following Secured Debts:
- car leases
- equipment leases
- car loans
- promissory note obligations to first mortgagees and/or second mortgagees (lien stays on property) on a property that client decides to surrender
- HOA obligations on a property that client decides to surrender
What are non-dischargeable debts in bankruptcy?
There are other debts that may be unsecured, but are not dischargeable under the bankruptcy code provision 523.
These debts are examples of debts that cannot be discharged:
- domestic support obligations (only child support and alimony in chapter 13; any DSO in a chapter 7)
- IRS tax debt
- student loans
- trust account debts-Sales Tax and 941 obligations
- debts procured from a misrepresentation or fraud
For more questions about your debts and whether bankruptcy can help, call the bankruptcy attorneys at the Bankruptcy Law Offices of James Schwitalla for your free consultation (305) 278-0811!