Filing for bankruptcy may be an effective way to reduce or eliminate debt balances without losing property such as a car or Florida home. However, there is no guarantee that you will actually receive any relief after doing so. Let’s take a closer look at the debts that are likely eligible for discharge in bankruptcy and those that may not be discharged.
What types of debts can be discharged?
As a general rule, unsecured debts can be eliminated. Unsecured debts include medical bills, credit card balances and other debts that were obtained without collateral. It’s worth noting that credit card balances or unsecured personal loans may become ineligible for discharge if they are used to pay for secured or priority debts.
What types of debts cannot be discharged?
Typically, you cannot get rid of debts such as secured personal loans, home loans or auto loans in bankruptcy. However, it may be possible to convert negative equity into unsecured debt. Priority debts such as back taxes, child support or alimony payments must generally be paid in full even after seeking protection for other creditors.
Some balances are eligible for discharge in special cases
If you have student loan debt, it’s unlikely that it will be discharged as part of a bankruptcy proceeding. However, there have been cases in which judges have allowed them to be eliminated because they created an undue burden on the debtors in question. Furthermore, the government may be willing to forgive a portion of a back tax debt if it’s clear that you can’t pay in full without incurring additional hardships.
There may be many benefits to filing for bankruptcy beyond just having debts reduced or eliminated. The moment that your petition is received, you will receive an automatic stay of creditor activity. This may give you time to negotiate new loan terms or to otherwise get your affairs in order.