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Can and Cannot: Debts That Can Be Discharged Through Bankruptcy

In addition to immediate protection from garnishment and collection efforts made by creditors, bankruptcy provides tools for discharging or reorganizing your debt. Using the method right for your financial picture helps you get back on your feet financially.

With Chapter 7, debt not paid off using funds from liquidated property is eliminated through discharge. In Chapter 13, your debt load may be reduced through renegotiation prior to approval of your repayment plan. In either case, it is important to know what type of debt can be discharged during bankruptcy. Consider these points:

  • Unsecured debt. Creditors who do not have an interest in property as collateral for the money you owe are called unsecured creditors. Unsecured debt often takes the form of credit card debt, medical bills and other expenses. While unsecured creditors cannot repossess your property, they can initiate garnishment and collection actions against you.
  • Secured debt. A creditor who has an interest or lien on property as collateral for money borrowed by you is called a secured creditor. Although the automatic stay in bankruptcy prohibits further effort toward repossession of secured property during the bankruptcy, that security interest remains and the property can eventually be repossessed by the creditor if you are unable to bring the loan current.
  • Other obligations. Many people owe debt that cannot be discharged through bankruptcy, including child support, alimony and criminal legal penalties. In specific cases, student loans and tax obligations can be addressed through bankruptcy.

Your financial situation is different from any other. If considering bankruptcy, get experienced legal counsel.

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