American case law is in a constant state of striking a balance between a business’ right to operate and an individual’s right to their own property. As a result, our nation has pioneered a forgiving and powerful consumer rights system, the crown jewel of which is our bankruptcy process. However, as powerful as it is, there’s plenty of misunderstanding about what it can actually do.
Today’s blog takes a look at what bankruptcy can accomplish, what debts can be discharged, and how a bankruptcy protects your rights.
Bankruptcy’s Primary Purpose
The point of any bankruptcy filing is to get rid of debts you cannot repay. However, which debts go away? Which ones are you still obligated to pay? Who decides which debts stick around?
Your debt falls into two categories: dischargeable debt and non-dischargeable debt. Dischargeable debt includes all the loans and accounts that a bankruptcy can clear away (plus some loans that are sometimes up for discharge). Dischargeable debt is usually unsecured—meaning there’s no property attached to it.
Dischargeable debts include:
- Credit card debt
- Unsecured debt (personal loans)
- Department store debt
- Medical bills
- Utility bills
- Back rent
- Student loans (only if you file a Complaint to Determine Dischargeability—learn more here)
What Can’t I Discharge?
However, while the above debts make up most of a person’s outstanding obligations, there are some payments the courts do not allow you to escape. This is non-dischargeable debt: any secured loans or legal obligations that must be paid back no matter what. In the case of secured loans (debts attached to property like a house or a car), debtors have the option to allow their property to be sold back or repossessed.
Non-dischargeable debts include:
- Child support and alimony
- Other debts dedicated to family support
- Debts for personal injury or death caused by driving while intoxicated
- Student loans, unless it would be an undue hardship for you to repay
- Fines and penalties for violating the law (including traffic tickets and criminal restitution)
- Recent income tax debts (within 3 years) and all other tax debts.
- Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy
When declaring bankruptcy, the law allows debtors to retain a minimum amount of equity in their home—this allows you to find a new place to live if you choose to sell the home to the bank. Debtors can just as easily arrange a repayment plan to allow them to keep their car or home; it’s up to them.
In Chapter 7 bankruptcies, your car and home are exempt from liquidation if they’re your only form of transportation and shelter.
The Best Benefit of Bankruptcies: Automatic Stay
Aside from clearing your financial plate of outstanding debts, bankruptcies have a powerful benefit for your peace of mind: it imposes an automatic stay on any debt collectors. That means from the moment you file, debt collection agencies are forbidden from contacting you. That means no more calls, no more statements, and no more threats of legal action.
The stay exists for the entirety of the bankruptcy process, after which you should have a new agreement with all of your lenders.
The “Gray Area”
Some discharges are up for debate—meaning creditors can challenge you in court for certain debts.
Creditor may challenge these discharges:
- Debt earned due to fraud
- Credit purchases of $1,150 or more for luxury goods within 60 days of filing
- Loans or cash advances of $1,150+ within 60 days of filing
- Debts from deliberate injury to another person or their property
- Debts from commercial criminal activity
If you owe debts from a previous divorce settlement, you would have to pay them unless you are still unable to afford them post-bankruptcy, or the detriment from paying the debt outweighs the detriment to your ex-spouse (who would be liable to repay them instead of you). Courts rarely want to force ex-spouses to pay your debts, so your situation would have to be especially dire.
Call (843) 695-7700 to learn more about your rights when it comes to bankruptcy! Our Myrtle Beach bankruptcy attorney is more than happy to go over your options in a free case consultation.