There is a common misconception with bankruptcy that once you file, all of your debts will be forgiven and you can start over with a blank slate. However, this is not always true as you may have debts that cannot be eliminated through bankruptcy. If you are unsure what kind of debt can be eliminated, the following blog explores what you should know about this process and why working with an Orange County consumer bankruptcy attorney is in your best interest if you’re considering filing.
What Is a Dischargeable Debt?
When you file for bankruptcy, the goal is to help eliminate debt so you can get your finances in order. As such, you’ll find that there are a number of “dischargeable” debts that can be entirely eliminated through bankruptcy. When a debt is discharged, you are no longer legally obligated to pay off the debt. Examples of debt accumulated through medical bills, personal loans, or credit cards are all considered dischargeable.
You should note that bankruptcy can have a serious impact on your credit score. Typically, Chapter 7 will remain on your credit report for 10 years while Chapter 13 remains for 7. In addition, you’ll find that although they have been discharged, debts eliminated during bankruptcy can appear on your credit report, negatively impacting the score. However, the impact it has will lessen over time.
It’s important to understand that if a debt is discharged during bankruptcy, creditors are legally prohibited from attempting to collect on the debt. This includes making phone calls, sending collection letters in the mail, or filing a claim against you for the outstanding amount.
Are There Debts That Cannot Be Eliminated Through Bankruptcy?
While there are a number of debts that can be eliminated through bankruptcy, there are also quite a few that cannot. These are called non-dischargeable debts because you will still be legally obligated for them after your case has closed. Examples of debts that will not be discharged through bankruptcy include:
- Taxes
- Leins
- Alimony or child support payments
- Any restitution to victims of a crime you committed
- Personal injury compensation for victims of your negligence
- Any debt incurred by fraudulent activity
It’s also important to understand that generally, you can be held responsible for any exuberant purchases you make within 90 days of filing for bankruptcy. For example, you may spend thousands of dollars on a luxury clothing company a month before filing in the hopes that this will be discharged during the case. However, you can be held liable for the amount spent in these matters unless you can prove you fully intended to pay off the purchase.
Though several debts cannot be discharged through filing, bankruptcy can still be incredibly beneficial. By eliminating your obligation to pay off dischargeable debts, you can catch up on these expenses to reduce the debt you are in.
As you can see, there are many considerations that must be made during the bankruptcy process. Unfortunately, you’ll find that making errors during this process can negatively impact the outcome of your case, which is why connecting with an attorney is imperative. At the Law Offices of Michael D. Pinsky, P.C., our dedicated team understands how overwhelming debt can be, which is why we will do everything possible to help you navigate these difficult matters. When you are ready to file, contact us to learn why so many in New York have trusted us to help them receive a financial fresh start.
