DebtsFive different Types of Debts
Can I Get Rid Of All My Debts?
Chapter 7 bankruptcy can help you eliminate most, or all of your creditors, but there are some debts that you may not be able to get rid of. Generally, you can get rid of most credit cards, medical debts, personal loans and debts from accidents.
Debts come in five major categories, in the Bankruptcy Code. They are:
- Secured debts
- Priority debts
- General, unsecured debts
- Co-Signed Debts
Let’s take a look at each category.
These include debts for your house, your car, and sometimes debts for household goods and furniture.
Your Home: if you have a mortgage on your home, you must either “reaffirm” on the home, or surrender it to the bank. A “reaffirmation agreement” is an agreement between your creditor and yourself and your creditor that says you agree to make payments, and the creditor agrees to let you keep the property. Payments continue as before.
If you are behind on payments, the creditor may not reaffirm on your home and may want to proceed to foreclosure. If this is the case, you may want to consider filing Chapter 13 to save your home. Whatever you do, please keep on making payments on your home, if you intend to keep it. If you intend to surrender it in bankruptcy, there is no need to continue to make payments.
If a creditor has sued you and obtained a judgment, they may have placed a lien on your home. If this is the case, we may need to file a “Motion to Avoid Lien” to remove the debt. Please discuss this with us, when you come in.
Your Car: you can also “reaffirm” on your car and continue to make payments on it, assuming you are current with the car payments. You can also surrender the car to the creditor. This is sometimes a good idea, if you are “upside down” on the value of the car, or if your car payment is too high. Chapter 13 may offer other alternatives to you to lower the interest rate, or to lower the monthly payment.
Household Goods: If you are buying a computer, a TV, a couch, or other household goods through a store credit card (Gateway Computers, Best Buy, etc.), you may have to pay for these items in order to keep them. There may be a way to pay the current used value for them. You can also surrender them back to the creditor.
Some creditors have you write down a list of the household goods you own when you take out a loan. They are taking a security interest in that property. We should file a “Motion to Avoid Lien” to remove that lien, when you file.
- Some unsecured creditors must be paid first, if any money is paid in your bankruptcy. These usually include:
- Back taxes
- Back child support and alimony
- Back wages you may owe to a former employee
- Debts that you owe your ex-spouse for your children’s medical debts may be considered in the nature of “child support” and may not be discharged. These debts are also usually non-dischargeable, but there may be exceptions.
GENERAL, UNSECURED DEBTS
The rest of your debts usually fall into a category known as general, unsecured debts. These include credit card debts, medical debts, debts from personal loans, and debts incurred when you are involved in a car accident and owe money from this. These are usually debts you can eliminate, but there are specific exceptions set up by the Bankruptcy Code.
Here are a few:
Student Loans: These are non-dischargeable, unless you can prove to the Bankruptcy Court that you have no ability to repay them, or that repaying them would result in an “undue hardship” to you and your family. Chapter 13 may help with these debts.
Back Taxes. These are non-dischargeable, but there are some exceptions!!! Taxes CAN be discharged, if all of the following conditions are met:
The taxes must be:
- For personal income taxes
- Actually filed by the debtor(s) or prepared by the IRS and signed by the debtor(s) and then filed
- Due and owing for at least three years (or two years, if filed late)
- Assessed by the governmental unit more than 240 days ago
Again, Chapter 13 may allow you to pay off non-dischargeable taxes.
Debts from Fraud: If you lied to someone to obtain a loan, the debt may be non-dischargeable. If so, the creditor may bring an action against you in Bankruptcy Court to have the debt declared non-dischargeable.
If you have run up a debt just before the filing of bankruptcy, you may have committed what is known as “constructive fraud.” That means that, at the time and place you took out the debt, you did not have the ability to repay the debt, and you either knew, or should have known that you could not pay it. If you have used any one credit card a lot just before the filing of bankruptcy, you may want to consider waiting to file bankruptcy so that you can let the credit card “get cold.” Chapter 13 may be right for you, if you have these debts.
Debts from Drunk Driving, or Driving Under the Influence of Drugs: Most debts from car accidents can be discharged in Chapter 7, but not these debts. You may want to consider a Chapter 13, if you have these debts.
Debts for Property Settlements in a Divorce: In some divorces, one spouse must pay the other spouse for property the first spouse receives. This debt may not be discharged, but it should be listed if you file bankruptcy.
Leases: If you are renting property, you have the choice to keep the lease, or to “rescind” the lease. This also includes rent-to-own furniture. If you keep the lease, you must keep paying for the items.
Co-signed loans: Remember that if you file bankruptcy on a co-signed debt, the creditor has the right to go back on a co-signor and sue them for them money, if you do not pay the debt. You may want to consider reaffirming on this debt, if that is a problem. If you reaffirm on the debt and pay it, it will not show up as a negative remark on your co-signor’s credit report.
If the co-signor makes the payment, you should not reaffirm on this debt: the debt will be their responsibility. So long as they make the payment, your co-signors will be unaffected by your bankruptcy.
By now, you realize bankruptcy is complicated. You are free to file bankruptcy on your own, without an attorney, but this is not really recommended. I have filed more than 3,000 cases since 1992. I am a former Law Clerk for the U.S. Bankruptcy Court for the Northern District of Iowa. Let me help you! My initial consultation fee is FREE, so please call today for your “no risk, no obligation” consultation.