Perhaps one of the biggest (and most logical) questions that those faced with bankruptcy ask is what type of debts will filing for bankruptcy get rid of? As a general principle, filing for bankruptcy is an effective way of eliminating unsecured debt such as credit card debt and medical bills. In addition, if you file for bankruptcy, you will have the option of surrendering homes, cars, boats and other property that serves as collateral for a loan with no continuing obligation for the debt. This is important for borrowers who find themselves owing more on a home or car than the property is worth.
CREDIT CARD DEBT
Credit card debt is classified as unsecured debt. Filing for chapter 7 or chapter 13 bankruptcy will wipe away or discharge most unsecured debts, credit card debt being no exception. The only cirmcumstance in which you will be stuck with credit card debt is if you’ve charged stuff on your cards with the intent of filing for bankruptcy. See: Decided To File For Bankruptcy? Don’t Use Your Credit Cards. Once you’ve consulted with a bankruptcy attorney, do not use your credit cards.
Another form of unsecured debt, medical bills will also be cleared off the books by filing for bankruptcy. According to some studies, medical debts account for 60% of U.S. personal bankruptcies.
Although chapter 13 bankruptcy can help catch up on past due child support payments, the obligation to make child support payments will remain even after filing for bankruptcy. Bankruptcy will not wipe out child support payments, they will have to be maintained even after bankruptcy.
MORTGAGE AND CAR PAYMENTS
If you wish to keep a home or car through the bankruptcy process you will need to be able to make payments post-bankruptcy. If you can’t keep up with the monthly payments, your lender will still be able to foreclose on your home or repossess your car. Having said that, bankruptcy will wipe out deficiency judgments owed after foreclosure or afford an underwater homeowner the opportunity to walk away from a home they can no longer afford. Once a house is surrendered in bankruptcy, your lender can no longer come after you personally.
Filing for bankruptcy will discharge most judgments. For example, if you’ve been sued by a credit card company and they have obtained a judgment, a bankruptcy filing will get rid of it.
This article is intended as a brief introduction to how different types of debt are affected by a bankruptcy filing. If you have questions about the chapter 7 bankruptcy discharge or other bankruptcy related topics, it is always wise to consult with a bankruptcy attorney.