Types of Dischargeable Debt

Orange County Bankruptcy Attorney

In order to understand dischargeable debt in a bankruptcy, it will first be necessary to learn what the function and purpose of a bankruptcy discharge is. A bankruptcy discharge releases the debtor from all personal liability for certain types of debts, also known as dischargeable debts. Once a debt has been discharged, the debtor is no longer legally required to pay anymore of that debt. A bankruptcy discharge is a permanent order prohibiting the creditors from taking any sort of collection action on the discharged debts, including legal action or any communications with the debtor, such as telephone calls or letters through the mail.

While the debtor is not liable for any of the discharged debts included in the bankruptcy, the debtor will still be responsible for a valid lien (a charge on specific property to secure payment on a debt) that was not avoided through the bankruptcy. This means that a secured creditor may still enforce a lien to recover the secured property. It is important to remember that not all debts can be discharged through bankruptcy and the dischargeable debts vary under each chapter of the Bankruptcy Code.

The most common types of non-dischargeable debts include:

  • Income taxes less than three years old
  • Trust fund taxes
  • Debts for spousal support
  • Child support debts
  • Debts for willful and malicious injuries to persons or property
  • Government fines and penalties
  • Government-funded educational loans
  • Debts for personal injury caused by drunk driving
  • Debts for certain condominium or cooperative housing fees

In general, credit card debt, medical bills, personal loans, and past-due utility bills can all be discharged in a bankruptcy. The Chapter 13 is commonly known as the "wage-earner plan," whereas the Chapter 7 is reserved for those who have minimal or sporadic income and who really need it. In order to determine which bankruptcy is right for you, we will need to assess your specific financial, living and employment situation. Chapter 7 allows the debtor to erase or wipe out certain unsecured debts, whereas a Chapter 13 allows the debtor with a decent and regular income to pay off all or merely a portion of their debts through a repayment plan. Perhaps the most significant advantage of Chapter 13 over a Chapter 7 is that it offers debtors the opportunity to save their homes from foreclosure. By filing under this Chapter, debtors can stop foreclosure proceedings and cure delinquent mortgage payments over time.

Are you interested in learning more about what types of debts can be discharged through a Chapter 7 or Chapter 13 bankruptcy? If yes, don't hesitate to contact 1st California Law, Inc. to speak with our Orange County bankruptcy attorney.