What happens to debts or obligations in bankruptcy?

Answers

Will a bankruptcy wipe out all debt?

A bankruptcy discharge will wipe out most general unsecured debts (credit cards, medical bills, unsecured personal loans, old utilities, auto deficiencies, etc). A secured debt may also be discharged unless you want to keep the collateral (car, house, furniture, etc). If you decide to keep the collateral, you will have to pay for it; however, the amount you pay may be less than the amount you owe, depending on the nature of the debt.

Student loans, child support, alimony, traffic tickets, court fees or fines, restitution, debts involving fraud/misrepresentation, and some tax debts are nondischargable. However, there are exceptions to the dischargeability of these debts. Dischargeability is a complex area of law that should be discussed with an attorney. [top]
How are debts paid in bankruptcy?

A chapter 7 bankruptcy filing will typically discharge (wipe out) most unsecured debt without payment to creditors; secured creditors (house, car, furniture, etc) will continue to be paid by the debtor. If there is money to be disbursed to creditors, the court will send a notice advising each creditor to file a proof of claim. If a creditor fails to file a claim with the court, it will not be paid.

Most Chapter 7 cases are "no asset" cases which means the unsecured creditors get nothing and the dischargeable debts are discharged. However, in cases where there are unprotected assets, the Chapter 7 trustee may require the asset to be turned over to him/her to liquidate. The proceeds from the liquidated assets will be disbursed to the unsecured creditors on a pro-rata basis, each creditor that has filed a claim will receive a portion of the proceeds and, if dischargeable, the balance of the debt is wiped out. In a Chapter 12 or Chapter 13 bankruptcy the trustee will distribute funds under the terms of the bankruptcy plan to creditors. [top]
Will a bankruptcy stop a garnishment? Yes, once a bankruptcy case is filed, all garnishments must stop. However, a garnishment for child support may only be temporarily interrupted as child support is not a dischargable obligation in bankruptcy. [top]
Will a bankruptcy stop a repossession?

Yes, either chapter 7 or chapter 13 will stop a repossession; however, with a chapter 7 filing the stop is only temporary. If you want to keep your car then you will have to make the payments necessary to catch up the loan or you can surrender your car to the lender and have the deficiency debt discharged.

A Chpater 13 will allow you to make payments over a three to five year period to catch up the payments you are behind. A chapter 13 may also allow you to modify the car loan by reducing the balance owed to the fair market value of the car; reduce the interest rate; and/or, reduce the monthly payments. [top]
Will a bankruptcy stop a foreclosure sale? Yes, a bankruptcy filing will stop a foreclosure sale, at least temporarily. A Chapter 7 filing will temporarily stall a foreclosure, but will not help you catch up the payments you are behind. A Chapter 13 filing will allow you to pay the missed payments over a three to five years. If you intend to keep your home, you will be required to pay your regular monthly mortgage payment on time after filing bankruptcy. If you cannot afford to make your house payments, a Chapter 13 filing may buy you time to sell the house. [top]
Will a bankruptcy stop an eviction? Yes, once a bankruptcy is filed, a landlord may not begin or continue an eviction proceeding based on past due rent; however, regular rent must be paid after the filing to prevent a future eviction. [top]
Will a bankruptcy discharge remove a lien? A bankruptcy discharge, by itself, will not remove a lien. However, depending on the kind of lien, it may be removed after a bankruptcy discharge has been received if the proper steps are taken. [top]
Are income taxes dischargable? Maybe. The treatment of income taxes in either Chapter 7 or Chapter 13 bankruptcy is complex and the assistance of an attorney is recommended. [top]
Are court fines dischargable? No. Court fines will have to be paid in either a Chapter 7 or a Chapter 13 bankruptcy; however a Chapter 13 will allow you to pay past due fines over the life of the Chapter 13 repayment plan. [top]
Is alimony or child support dischargable? No. An obligation to pay alimony or child support is nondischargable in a bankruptcy proceeding; however a Chapter 13 bankruptcy plan may be used to catch up back support payments. [top]
If I am responsible for debts as a result of a divorce, can I discharge them? It depends. Your attorney will need to see a copy of your divorce decree and ask you specific questions regarding the marital debt that was assumed under the divorce. [top]
Are student loans dischargable? Generally no, student loans and other educational obligations are typically not discharged. However, in extreme circumstances a student loan may be discharged or reduced in a separate judicial proceeding if the court finds repayment of the debt would result in undue hardship. [top]
What happens if I forgot to list a debt in my bankruptcy? If the failure to list a debt unfairly hurts the creditor then the debt may not be discharged. However, if the unlisted creditor is not unfairly hurt then the debt may be discharged. It is important to spend a lot of time thinking about whom you owe money to and include all creditors in your petition. If you have already filed bankruptcy and you are later contacted by a creditor who should have been included, you should contact your attorney immediately. [top]