Are you knee deep in debt and you are unable to pay it off? If you are, you have only way out of this mess. You need to file for either Chapter 7 or Chapter 13 bankruptcy, depending on which one is more suited to your current condition. Defining the two different types of bankruptcy:

Chapter 7 Bankruptcy— Liquidates an individual’s non-exempt assets to repay the creditors. People who have large amount of pending and overdue medical bills and credit cards bills tend to file for Chapter 7 bankruptcy, as they do not earn enough to repay the creditors.

Chapter 13 Bankruptcy — Develops a plan for individuals earning enough income to repay their entire or part of their debts within an allocated time. The debtors provide a repayment plan to the person to pay what they owe in installments over the course of three to five years.

The primary reason of filing for Chapter 7 and 13 bankruptcies is to provide individuals with relief by discharging some of their looming debt from over their heads.

Discharge of Debts

A discharge of debts frees individuals from personal liability and stops the creditors from taking legal action against them. Even though the individual is no longer legally required to repay the debt, the creditor may enforce a valid lien to recover their property secured by it.

When Do Debtors Receive a Discharge?

Usually, a court grants a discharge of debts in Chapter 7 bankruptcy at the end of the case. In other cases, the court discharges of debts after the creditors have met and consulted with each other. Hence, it can take a debtor four months to receive a discharge after filing for bankruptcy.

Which Types of Debts Are Dischargeable in Chapter 7 Bankruptcy?

Chapter 7 bankruptcy in comparison to Chapter 13 bankruptcy discharges majority of a debtor’s debt. However, Chapter 13 bankruptcy discharges debts, which otherwise are non-dischargeable under Chapter 7 bankruptcy. For anyone thinking about filing for Chapter 7 bankruptcy, it is vital to comprehend the different types of dischargeable debts.

Here is a comprehensive list of the types of discharge debts under Chapter 7 bankruptcy:

• Attorney fees, not including alimony and child support payments
• Auto accident claims (accidents resulted from drunk driving incidents do not count)
• Bounced checks (does not count if the dishonored check was a result of fraud)
• Business debts
• Civil court judgments (does not count is the judgment was on a fraud case)
• Collection agency accounts
• Credit card payments, including late and overdue fees
• Medical bills
• Money owned under rental-lease agreement, including past due rent
• Only past due utility bills
• Personal loans from family, employers, and friends
• Repossession deficiency balances
• Revolving charge accounts, not including extended payment charges
• Social security overpayments
• Student loans (only applicable in certain situations)
• Tax penalties and unpaid taxes (applicable after a specific number of years have passed without paying taxes)
• Veterans assistance overpayments and loans

Individuals who incur debt after filing for bankruptcy will be responsible for repaying them. For this reason, it is critical for people to keep their spending habits in check, as any debts incurred after filing for bankruptcy will not be included in the category of dischargeable debts.

Filing for Chapter 7 Bankruptcy

In order to ensure people to relief themselves of all responsibility of repaying their debts, they must list all of their existing debts on their bankruptcy filing. Do not make the mistake of not writing down the non-dischargeable debts.

People with nonexempt assets, which include costly musical instruments, a second home, a second vehicle, family heirlooms, cash, stocks, and bonds, and collection of coins, stamps, and other valuable items, will have to hand them over to the creditors and debts not listed in the filing will remain non-dischargeable.

That is why, it is recommended for people to seek the counsel of an attorney so they do not accidently leave out a dischargeable debt off the list.

What Happens If An Individual Leaves a Debt Off the List?

In the event an individual leaves of a debt off the list in a no-asset Chapter 7 bankruptcy scenario, the court will assume a “no harm, not foul” approach, meaning they will still discharge the debt, but there is a catch.

The Catch: The inclusion of the forgotten debt would have resulted in the creditor still not receiving something in return.

Other factors the court looks at to determine if they should discharge the debt or not include:

• The reasons a person did not list the debt
• Determining if the inclusion of the debt would disrupt the bankruptcy proceedings
• Determining if discharging a debt will cause the creditors to call the court’s action unfair

Even though most courts have adopted the “no harm, no foul approach,” the First Circuit has denounced it. If an individual forgets to list a creditor in a no-asset Chapter 7 bankruptcy, it will remain discharged.

People facing this issue can appeal to the court to reopen the bankruptcy case to add the omitted debt. Still, it is beneficial to hire an attorney to assist you file for Chapter 7 or Chapter 13 bankruptcy.

Filing for Chapter 13 Bankruptcy

As discussed previously, in Chapter 13 bankruptcy, an individual does have to repay their creditors within a specific duration decided by them. The amount an individual has to repay depends on the expenses and income. Alimony payments, child support payments, and current taxes fall under the category of priority debts and people must pay them in full.

Which Types of Debts the Bank Considers Non-Priority?

The bank considers the following debts non-priority:

• Credit card debt
• Debts related to negligence or breach of contract
• Medical bills
• Older unpaid taxes
• Personal loans

Which Types of Debts Are Dischargeable in Chapter 13 Bankruptcy?

Here is a list of debts considered dischargeable in Chapter 13 bankruptcy, but not in Chapter 7 bankruptcy:

• Malicious and willful damage to property (except for willful harm to another individual)
• Debts incurred to repay non-dischargeable taxes using a credit card
• Debts due to divorce, separation, or property settlement (except for alimony and child support payments, individuals can discharge themselves of other payments assigned to tem during court proceedings such as debt incurred for a joint credit card)

To figure out what bankruptcy option you should choose, consult with an attorney.