The two primary forms of bankruptcy 

Before diving into the specifics of which debts are dischargeable and which are not, it’s important to understand the two primary forms of bankruptcy available to individuals: 

• Chapter 7 bankruptcy: Also known as “straight bankruptcy,” this form of bankruptcy involves the liquidation of non-exempt assets to pay off as much debt as possible. After this process, most remaining unsecured debts (such as credit card balances and medical bills) are discharged. 

• Chapter 13 bankruptcy: Under this form of bankruptcy, individuals with a regular income propose a repayment plan to catch up on missed payments over a period of three to five years. At the end of this period, any remaining unsecured debts may be discharged. 

Reasons why individuals file for bankruptcy  

While damaging credit is a major consequence, for those facing insurmountable debt burdens, bankruptcy can be the most viable path to regaining financial control. Here are the most common reasons why most people file for bankruptcy… 

• Overwhelming unsecured debt: If you have large amounts of credit card debt, medical bills, or other unsecured debts that you cannot realistically pay off in a reasonable time frame, bankruptcy allows you to eliminate or restructure these obligations. 

• Foreclosure/repossession prevention: Filing for bankruptcy can temporarily halt foreclosure on your home or repossession of other property by creating an “automatic stay” that stops creditor actions. 

• Increased income protection: Bankruptcy exemptions protect certain assets and income from being taken, allowing you to maintain a basic standard of living during and after the process. 

• Harassment relief: The automatic stay also stops debt collector harassment, lawsuits, wage garnishments, and other creditor actions against you. 

• Fresh financial start: Bankruptcy provides a way to discharge burdensome debt that is preventing you from achieving financial stability and moving forward. 

• Saving assets/property: Chapter 13 allows you to reorganize debts and catch up on missed payments over time while keeping key assets like a home or car. 

Debts that are typically dischargeable in bankruptcy 

While the specifics may vary depending on the type of bankruptcy filed and the individual’s circumstances, the following debts are generally dischargeable: 

• Credit card debt: Unpaid balances on credit cards are among the most common forms of debt discharged in bankruptcy. 

• Medical bills: The high cost of healthcare can often lead individuals to accrue significant medical debt, which can be discharged through bankruptcy. 

• Personal loans: Unsecured personal loans, such as those taken out for consolidation purposes or major purchases, are typically eligible for discharge. 

• Utility bills: Outstanding balances owed to utility companies (e.g., electricity, gas, water) can often be eliminated through bankruptcy. 

• Certain tax debts: Depending on the age and type of tax debt, some tax liabilities may be dischargeable. 

Debts that cannot be discharged in bankruptcy 

While bankruptcy offers a fresh start for many forms of debt, there are certain types of obligations that cannot be erased through this process. These include: 

• Student loans: In most cases, student loan debt cannot be discharged in bankruptcy, except in rare cases of undue hardship. 

• Alimony and child support: Domestic support obligations, such as alimony and child support payments, are typically non-dischargeable. 

• Recent tax debts: Tax debts that are less than three years old, as well as certain other types of tax liabilities, are generally not eligible for discharge. 

• Criminal fines and restitution: Debts arising from criminal activities, such as fines and restitution orders, cannot be discharged through bankruptcy. 

• Secured debts: If you wish to keep an asset secured by a loan (e.g., a home or car), you will still be responsible for paying off the associated debt.