What Happens To Debt In A Chapter 7 Bankruptcy Case?

The purpose of using bankruptcy is to receive relief from your debt, but bankruptcy does not merely erase every debt you have. If you are eligible to use Chapter 7, you will receive some debt forgiveness through your case, but it will not eliminate every debt. Here is an explanation of what happens to your debt if you use Chapter 7.

Your Lawyer Analyzes Your Debts Before You File

The first step in a Chapter 7 case is determining if this branch would offer the relief you need. To find out, you can meet with a Chapter 7 bankruptcy attorney for a consultation visit. During this visit, your lawyer will analyze your debts. Through this, the attorney can tell you what will likely happen to your debts. Finding out this information can help you decide if filing for Chapter 7 is right for you.

The Court Discharges Qualifying Debts

There are two main categories for debts used in Chapter 7 bankruptcy. The first category is qualifying debt. If you owe money for things that fall into this category, the court will discharge the debts. Discharging the debts is forgiveness of them. When this occurs, you will not have to repay the money owed. Instead, the court forgives the money. An example of a debt that normally falls into this category is credit card balances. Do you owe money to credit card companies? If so, your case will eliminate these balances in most situations. Many other debts also qualify for a discharge, including medical bills and personal loans. If the court discharges these items, you will never be legally responsible for paying them.

Nothing Happens to Debts that Do Not Qualify for a Discharge

The other thing to realize is that there might be debts that do not qualify for a discharge. The court calls these non-qualifying debts. If you owe money for these types of things, you will still owe the money after filing for bankruptcy. Some examples of non-qualifying debts are child support, student loans, and alimony. Back taxes also fall into this category. Chapter 7 cannot eliminate every bill you owe, so make sure you find out which ones it helps with before filing.

If you are interested in learning what will happen to your debts if you file for Chapter 7, talk to an attorney. An attorney can help you determine if this option is right for your situation.