Many debts can be discharged in Bankruptcy. Discharged essentially means the debts are ‘wiped out’, eliminated or that you are no longer responsible to pay those debts.
Debts that can be discharged are typically unsecured debts. Examples of unsecured debts are debts such as credit cards, medical bills and essentially any debt that is not secured against assets. There are cases were these debts may not be dischargeable for example if they were obtained shortly before filing Bankruptcy or obtained by fraud. Unsecured debts that are not dischargeable also include child support, alimony or some taxes.
Some examples of secured debts are vehicle loans, mortgages on houses or any loan that you obtained that utilized an asset as collateral. No matter what type of Bankruptcy you file, it may be possible for you surrender the property and discharge the debt rather than continuing to pay. In a Chapter 7 Bankruptcy you will have to get and keep current on any secured debts that you want to keep otherwise your property could be repossessed or your home could be foreclosed. If you decide to surrender those assets, the the debt will be discharged.
Unlike Chapter 7 cases, there are limits to the amount of secured debts and unsecured debts that you can have in a Chapter 13 Bankruptcy. In a Chapter 13 Bankruptcy all debts will have to be provided for in the Chapter 13 plan. Your attorney will review this with you and help you create a plan that is specific to your situation. You can surrender the debt, get current on the debt, or pay off the debt in the Chapter 13 plan.
In some cases secured debts can be “stripped” from the asset. This means that at the completion of the confirmed plan that debt will no longer be owed.This commonly occurs with second mortgages. This is where it is important to know the value of your home. If your home is worth less than you owe on your first mortgage, you may be able to “strip” or get rid of your second mortgage.
One of the many benefits of a Chapter 13 Bankruptcy is that in many cases a Chapter 13 plan can provide for bring accounts such as mortgages or car loans current so that you can keep the property.
Similarly, some secured debts can be reduced to the value of the asset and paid off within the life of the Chapter 13 plan. This means that it is possible that a car could be paid off completely in the plan for what it is worth rather than what is owed. You will want to talk with your attorney about whether a Chapter 13 is an option for you and how it will effect your debts.
As mentioned previously, not all debts are dischargeable. Taxes that are not greater than three years old and/or the returns were not filed timely or were filed less than two years ago cannot be discharged. Even so, it is possible that taxes could be paid in certain types of Bankruptcy such as in Chapter 13s. Your attorney will review with you the effects of Bankruptcy on your debts.