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Will Bankruptcy Clear a Person's Debt?

  • Any's IIT Firm
Debt is an inescapable part of life for many people. If you find yourself spending more than you make, consider seeking credit counseling from a certified agency.
Reducing expenses and paying bills on time can free up funds to pay down debt. Another option is bankruptcy, which can erase certain types of debt and stop creditors from repossessing property.
The following is information around debt, however, bankruptcy attorneys in Harrisburg, PA will be able to guide you through the bankruptcy process and have the most accurate information.

Discharge of Debts

A major goal of bankruptcy is to discharge debt, which means that you no longer owe the balance on the account and creditors cannot try to collect it. The only exceptions are debts that the bankruptcy law specifically says are not dischargeable, such as money owed for causing injury or death to someone else through willful misconduct or for property damage caused while driving under the influence of alcohol or drugs.
Other non-dischargeable debts include most unsecured debt, such as credit card balances, past due rent or unpaid utilities, personal loans from friends and family and government program overpayments. In addition, debts that you reaffirm with a secured creditor (in other words, agreeing to pay them back despite the bankruptcy) are not discharged either.
A valid lien (in other words, a charge upon specific property to secure payment of the debt) remains in place after a discharge. This is because the secured creditor has a legal right to seize and sell any property that was attached to the debt when it was incurred.

Discharge of Certain Debts

Once the court issues your discharge, creditors no longer have a legal right to collect on those debts. However, some creditors may continue to try to collect after the judge signs the discharge order. If they do so, they are disobeying a court order and could be subject to sanctions by the bankruptcy court.
A debt is considered secured if it is backed by collateral that the creditor can seize if you fail to make payments. Examples of secured debt include home mortgages and car loans. You can negotiate with lenders to alter the terms of your original loan while in bankruptcy or decide to reaffirm your debt by signing a reaffirmation agreement before your discharge is entered.
The judge might deny your discharge if the judge believes that you committed fraud in filing for bankruptcy, did not take a required course on financial management or committed other violations of the law. You can file an objection with the court if you disagree with the judge's decision.

Discharge of Certain Non-Dischargeable Debts

Bankruptcy is a way for an overwhelmed individual to get a fresh start by liquidating (Chapter 7) or reorganizing (Chapter 13) their debt. However, bankruptcy does not discharge all types of debts. Certain obligations survive, such as student loans, alimony and child support, priority tax bills, recent income taxes and criminal fines.
A creditor can object to the discharge of a debt by filing a lawsuit known as an adversary proceeding in the bankruptcy court. The creditor must prove the debtor committed fraud or a qualifying wrongful act in order to prevent a discharge of that debt.
Generally, mortgages and auto loans remain a secured debt, even in bankruptcy. This means the lender has a lien on any property it used as collateral for that debt. In some cases, the property can be sold by the trustee to cover the debt owed to the secured creditor. However, this is rarely done in a consumer bankruptcy.

Discharge of Non-Dischargeable Debts

The bankruptcy court will discharge some debts, allowing the debtor to wipe out credit card and medical bills, among other types of debt. Other debts, however, are nondischargeable under the law. Congress has designated these debts as nondischargeable based on public policy considerations, including the support of children and access to education. These include child support, alimony and most tax debts.
If you qualify for a Chapter 7 bankruptcy, the court will enter an order of discharge at the end of your case. This prevents creditors from garnishing your wages, repossessing a car or foreclosing on a house. Creditors may, if they choose, challenge the discharge of debts in an adversary proceeding before the court.
The bankruptcy court sends a copy of the order of discharge to all creditors listed in your case, the trustee and the debtor's attorney, if you have one. It is also available through the PACER system, which offers electronic access to case information for a fee.
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