Chapter 7 bankruptcy is a terrific way to eliminate debt. You can get rid of decades worth of credit card debts, medical bills, pay day loans, personal loans, and other unsecured debt without having to pay a penny to a single creditor. You can walk away with a completely clean slate and move on with your life free from debt.
But not all debts are eliminated when you file. Before going through the time and effort it takes to file for Chapter 7 bankruptcy, you should first find out just how much of your debt will be eliminated when you file, and how much you’ll be stuck with when it’s over. If most of your debt will remain after filing, it may not be worth filing for bankruptcy in the first place.
Secured debts are not eliminated when you file for bankruptcy. More accurately, the debt is technically eliminated but the bank has the right to take back the collateral. If you want to keep your asset, you will have to continue to make the payments even after filing for bankruptcy. If you fall behind on your payments, you will face foreclosure or repossession just like somebody who has not filed for bankruptcy. Houses with mortgages and cars with loans are common examples of secured assets.
The Special Variety
Some varieties of debt fall into a special category where state or federal law protects it from being discharged in bankruptcy. If most of your debt falls into this category, it may not be worth filing for bankruptcy because it won’t be eliminated when you file.
Debts of this type include: debts that arise from a fraud you committed, student loan debt, child support and alimony, recent tax debt, wrongful death and personal injury judgments, and debts arising from actions done while under intoxication.
If you meet with an attorney for a bankruptcy consultation, he or she will thoroughly evaluate your situation so you can know exactly what debts will be eliminated, and what debts will survive your bankruptcy.