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What debt can be discharged in bankruptcy? What debt cannot be discharged?

In a consumer, personal Chapter 7 bankruptcy, an individual (or two individuals, if filing jointly) can erase most of their debts. We say, “Chapter 7” because it is one of several “chapters” that the Bankruptcy Code governs. Each chapter is different. For example, Chapter 9 is meant for municipalities, such as cities. A Chapter 7 bankruptcy is often referred to as the “fresh start” bankruptcy as it wipes out most debts that the petitioner owes. Many clients come to our office owing too much credit card debt or medical bills debt to pay back. Creditors seeking repayment sometimes garnish their wages. It is important to understand which debts are not dischargeable while you are considering if bankruptcy is right for you.

First, it is important to note that in a Chapter 7 bankruptcy, you can keep certain property, such as a car. If you have an auto loan, and wish to continue paying the loan in order to keep your car, then you can reaffirm that debt. A reaffirmation is an agreement that you will continue to pay that debt and it, along with the property you are paying for, will not be wiped in bankruptcy and the property will not be repossessed or foreclosed.

Next, tax or government owed debt is not discharged. This is money you owe to the government, and it must be paid. Also, support-related debt, such as alimony or child support, must be paid, even back-owed money. The courts consider this an absolute obligation. Student loans also have to be paid back. Only under very rare conditions can student loan debt be discharged. Remember that nearly all student loan servicers, including all federal government loan servicers, which handle many student loans, offer different types of repayment options. If you are in financial distress, then you may be able to have your monthly payments lowered through an income-based repayment option, for example. If you do not understand your student loan repayment options and grace periods, then call your loan servicer directly.

If you owe a fine to the government, such as a parking ticket, or owe money in a criminal case, then you must pay these debts. Regardless of the penalty’s size no level of government will let them be discharged in a Chapter 7 bankruptcy.

Finally, if you do not properly list all of your debts, then some debts may not be discharged. While it is sometimes possible to reopen a bankruptcy file, you should be sure that you let your lawyer know about all of your creditors and debts so that papers can be filled correctly, and you will be given full relief. Also, a bankruptcy can use discretion in dealing with your petition and decide that a certain debt cannot be discharged.

If you have any questions about bankruptcy or debt, then you should contact an experienced attorney. Jayson Lutzky has over 31 years of experience helping New York clients in legal matters. He offers free in person consultations for those considering personal bankruptcy at his Bronx office. Call 718-329-9500 to set up an appointment or visit www.MyNewYorkCityLawyer.com to learn more about bankruptcy. The source for this blog was a court document, “Explanation of Bankruptcy Discharge in a Chapter 7 Case.”

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