When you successfully resolve and complete a bankruptcy, some of your debts will be labeled as "discharged". This means that your debts are no longer enforceable for collections by the creditor. This is the ultimate goal of filing for bankruptcy and the desired outcome by anyone seeking its protection.
The end result of a successful case is a debt discharge can vary depending on the type of bankruptcy you file; Chapter 7 or Chapter 13. How the debts are managed in either of these types of bankruptcy is important to consider before you seek debt relief through bankruptcy.
When you file a Chapter 7 case, the court will evaluate your eligibility under the means test, which includes information about your assets, income and debts. The Chapter 7 means test evaluates your income and asset level to determine you have the financial ability to repay some or all of your owed debts. Debt repayment may be done through monthly payments of a calculated portion of your disposable income or through the liquidation of some nonexempt assets. It is important to note that the court will not require you to pay an amount, or liquidate assets, that would cause you further financial burden.
When you file a Chapter 13 case, the court will evaluate your income to debt levels to determine an affordable repayment plan. A Chapter 13 plan allows you to spread out your payments over the course of three to five years. An important difference to note when seeking debt relief is that repaying debts under a Chapter 13 plan also provides more protection for even nonexempt assets, like luxury items and secured debt collateral.
In either a Chapter 7 or a Chapter 13 case, it is important to note that there are some debts that are not eligible for a discharge and will require repayment. These are called "priority debts", and are considered required for repayment. Common examples of these debts not eligible for a discharge are alimony, child support, debts accumulated fraudulently and criminal restitution payments. Further, some tax debts and student loan debts may also not be eligible for discharge in bankruptcy.
If you are considering bankruptcy, speak to a Sacramento bankruptcy attorney about your debts to ensure you obtain the best outcome in your case filing.