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June 13, 2018
Unbiased Financial Information Provided by Financial Finesse
How are debts classified in bankruptcy?
Debts are divided into two categories: dischargeable and non-dischargeable.
What is a "discharge" in bankruptcy?
A "discharge" in bankruptcy means that you are legally free and clear of any obligation to repay the debt. It simply goes away. The creditor no longer has any right to collect the debt. The debtor no longer has any obligation to repay it.
When is the discharge issued?
Can all debts be discharged in bankruptcy?
No. This is why it is important to consult with a bankruptcy attorney if you are considering filing. Depending on your circumstances, bankruptcy may or may not make sense for you. Why declare bankruptcy if you will be no better off than you were before?
So which Debts are Dischargeable in Bankruptcy?
The most common debts that you may get rid of are:
Which debts are not discharged in bankruptcy?
In general, liens (such as mortgages and security interests in cars) are non-dischargeable as are some other types of obligations including:
A non-dischargeable debt is one that will survive the bankruptcy proceeding. The debtor will still have the obligation to pay this debt; the creditor has every right to collect.
Suppose the person filing bankruptcy committed fraud - would the debts be discharged in bankruptcy?
No. The Bankruptcy Code has long prohibited debtors from discharging liabilities incurred on account of their fraud, carrying forth a basic policy of affording relief only to an "honest but unfortunate debtor."
Can a creditor ask a debtor to pay a dischargeable debt anyway?
Yes. Even after it has been discharged a creditor may ask a debtor to repay a debt. It's called reaffirming the debt. There are a few reasons why a debtor may agree to this.