If you are considering filing for bankruptcy to resolve your debt obligations it is important that you understand how the process works and what to expect from the process. Your Sacramento bankruptcy attorney will review this information with you, but to begin you should first understand what types of debt you have and how they are handled in a Chapter 7 bankruptcy case.
There are three basic types of debt: secured, unsecured, and priority.
Secured debts are those that are tied to property as collateral, such as a mortgage or car loan. These debts are "secured" in the sense that if you default on the debt the property (i.e. house or car) can be repossessed in order to satisfy what is owed to the creditor.
Unsecured debts are those that are not tied to any property or assets as collateral, such as credit cards and medical bills.
Priority debts are distinguished primarily by the nature of the debt who the debt is owed to, such as the IRS or a student loan lender. These are priority in that they can be difficult to discharge and even if they are eligible for a discharge they are moved to the top of the list for receiving any payments and funds from liquidated assets.
Discharging Debts Through Chapter 7
As mentioned, there are some debts that cannot be discharged under Chapter 7, but instead may be handled as a priority debt in a Chapter 13 case. These include:
- Student Loans - are almost never discharged in either Chapter 7 or Chapter 13. However, it’s important to note that student loans can technically be discharged if they cause undue hardship, but this can be a difficult case to prove against the objection of the lender in a process called an adversary proceeding.
- Priority debts. Debts such as child custody, alimony, or any other types of domestic support remain your responsibility after the Chapter 7 filing because they are not discharged.
- Fines. Any costs accrued during the case such as attorney fees or fines and other penalties imposed from any governing body. However, some courts will waive the filing fees if the debtor cannot afford to pay for them.
- Debt that is the result of illegal or criminal activity. If you have debt that has accrued because of illegal activity such as fraud or reckless conduct that caused injury to another, it cannot be discharged through a Chapter 7 bankruptcy.
While these are some of the most common debts that cannot be discharged, it’s important to speak with your Sacramento bankruptcy attorney about your options for the debts you want to resolve.