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What Debts Can Be Discharged in A Bankruptcy?

Bankruptcy cases allow individuals, known as debtors, to discharge certain types of debts. A bankruptcy discharge means that the debt is wiped out and the debtor can never be responsible for paying that debt again. During a bankruptcy case, debtors can discharge both secured debts, unsecured debts and some liens.

A secured debt is a debt that is attached to property or another form of collateral. With a secured debt, the creditor is able to seize this collateral if the debtor defaults on his or her payment obligations. Usually, secured debts include things like mortgages and auto loans.

During a bankruptcy case, debtors with secured debts can only discharge them if they give up the collateral securing the debt. For example, a debtor could not both discharge an auto loan and keep the vehicle securing the loan. The debtor would either need to pay off the loan, turn over the vehicle, or continue making payments on the loan in a Chapter 13 case or outside of the bankruptcy case.

Unsecured debts are those that are not secured by collateral. Credit card debt, medical debt, and other types of unpaid debts or contracts can be discharged in a bankruptcy without the debtor needing to make additional payments or turn over property.

Unsecured creditors are only entitled to money in certain circumstances. In a Chapter 7 case, a debtor is only allowed to have a specific amount of property in his or her possession. If the debtor has too many assets, he or she will need to turn them over to the trustee. The bankruptcy trustee will then sell these assets and distribute them to the debtor’s creditors.

In a Chapter 13 bankruptcy the debtor will not have to sell off property, but he or she will need to pay off the unsecured creditors’ claims. These claims are usually a fraction of the value of the actual claim. For instance, a credit card company to whom the debtor owes $10,000 may only recover $100 in a Chapter 13 case. The actual amount of the claims will depend on the debtor’s disposable income. In general, the amount of money the unsecured creditors will receive is very low—as long as the unsecured creditors receive more money in a Chapter 13 case than they would in a Chapter 7 case, the Chapter 13 plan can be approved. Once these claims are paid off, the Chapter 13 debtor will no longer owe the unsecured debt.

Finally, a bankruptcy case may be able to discharge some liens. Some liens are non-dischargeable; for example, liens for child support or back taxes can almost never be wiped out in a bankruptcy. However, some liens for lawsuit judgments or property issues can be discharged in a bankruptcy.

If you are considering filing for bankruptcy, it is important to know which debts you can discharge and which you cannot. At Loan Lawyers, our South Florida bankruptcy attorneys are experienced with all types of bankruptcies, and can help you understand your options.

For a free, no-risk consultation, contact Loan Lawyers today by calling (888) FIGHT-13 (344-4813).