Types of Debt You Can Discharge

Elk Grove Chapter 7 Discharge Attorney

There are many misconceptions about bankruptcy. At the Liviakis Law Firm, I talk to people every day who have questions about discharging their debt. It is completely understandable that people are confused and don’t realize that there are specific rules about what types of debt can be discharged under Chapter 7 bankruptcy, and what can be included in a Chapter 13 debt reorganization plan. In fact, many people aren’t even aware of the difference the two types of personal bankruptcy.

Types of Debt You Can Discharge

In general, most kinds of consumer debt can be eliminated under a Chapter 7 bankruptcy filing. If you qualify and the court rules the debt is dischargeable, you can eliminate consumer debt such as:

• Credit card debt
• Medical bills
• Secured loans such as a car loan or boat loan
• Tax debt if all IRS conditions have been met
• Judgments for debts owed
• Mortgage debt if you do not wish to keep your house

Before debt can qualify for discharge, your creditors will have an opportunity to press their case for repayment. There is no such thing as a slam-dunk Chapter 7 bankruptcy filing. Every creditor will have an opportunity to seek repayment for all or a portion of what you owe. It will also be up to your creditors to decide whether to press for the products you purchased with their money, such as household appliances and furniture you may have purchased on their credit card. Finding a resolution to eliminate as much debt as possible under a Chapter 7 filing requires skillful strategies with your creditors.

Chapter 7 bankruptcy is as notable for the types of debt that cannot be discharged. You cannot eliminate student loans unless you can demonstrate a qualifying hardship. Additionally, a judgment or arrears relating to child support is not dischargeable.

Tax Debt and Tax Workout Plans With the IRS

Income tax debt can often be eliminated under Chapter 7 if you have filed your tax returns and sufficient time has passed since the tax debt was assessed. If you owe a substantial amount of federal or state tax debt, you may not need to file for bankruptcy. I can help you negotiate an offer in compromise that typically reduces your tax arrears substantially. An offer in compromise, commonly referred to as a tax workout plan, works by showing that you have made every attempt to repay the IRS.

Chapter 13 Debt Reorganization

Most people consider Chapter 13 to be a lesser form of bankruptcy, but it often has more advantages. Under a court-supervised Chapter 13 reorganization plan, you can include nearly all debt. I will work with your creditors to negotiate a plan that will generally reduce your interest rates and the principal of the loan. Often, money owed for penalties and fees can be stripped off the amount of the balance. A well-executed Chapter 13 plan spread out over a three- or five-year repayment period typically results in thousands of dollars in reduced payments.

Chapter 11 business bankruptcy follows much of the same general principals of Chapter 13 for debt reorganization, but is a chapter restricted to business entities and high-asset personal bankruptcy.

Divorce and Debt

If you are considering filing for divorce, it is important to remember that family debt is considered marital community property in California. It is often a good idea to eliminate as much debt as possible through bankruptcy, prior to beginning the divorce process. If you are already in the process of a divorce settlement, or your divorce judgment includes paying debt assigned as part of the community property settlement, you may be able to eliminate or reduce much of it through the appropriate bankruptcy chapter.

With offices conveniently located in Rancho Cordova and Sacramento, I represent clients in communities throughout Sacramento County, El Dorado County and Placer County, California. My offices are open 9 a.m. to 5 p.m. Monday through Friday and include free parking.

Contact an office near you for a free initial phone consultation with an experienced, knowledgeable Sacramento bankruptcy attorney who is ready to help you start building a secure financial future. The bankruptcy lawyer you hire will make a difference in the outcome of your case and the outlook for your financial future.