Bankruptcy Myths — Part Three: All of My Debts Will Be Relieved

I've worked with hundreds of clients who have filed bankruptcy in Flint, MI, Detroit, MI, and Bay City, Michigan. In each of those cases, there have been several reoccurring concerns that almost every client shares. One of the most important misconceptions to address is the belief that filing for bankruptcy will automatically eliminate all of your debts.

While bankruptcy is an extremely effective tool for financial relief, it is important to understand which debts can be discharged and which cannot.

Debts That Can Typically Be Discharged

The good news is that many common types of consumer debt are eligible for discharge in bankruptcy:

• Credit card debt — One of the most common reasons people file for bankruptcy.
• Medical bills — Unexpected medical expenses are a leading cause of financial hardship.
• Personal loans — Unsecured personal loans and lines of credit.
• Utility bills — Past-due balances on gas, electric, water, and phone services.
• Some older tax debts — Income tax debts that meet certain age and filing requirements may be dischargeable.

Debts That Generally Cannot Be Discharged

Certain categories of debt survive bankruptcy and must still be repaid:

• Student loans — Except in cases of proven "undue hardship," which is a difficult standard to meet.
• Child support and alimony — Domestic support obligations are always non-dischargeable.
• Recent tax debts — Tax debts from the past few years are typically not eligible for discharge.
• Court fines and restitution — Criminal fines, penalties, and restitution orders.
• Debts from fraud — If a creditor can show the debt was incurred through fraud or misrepresentation.
• DUI-related debts — Debts arising from death or injury caused by driving under the influence.

Chapter 13 Offers Additional Options

While Chapter 7 provides a quicker path to discharge, Chapter 13 offers some advantages when it comes to managing non-dischargeable debts. Under a Chapter 13 repayment plan, you can:

• Catch up on mortgage arrears to avoid foreclosure
• Pay back taxes over a three-to-five-year period
• Reduce payments on car loans to the vehicle's current value
• Consolidate non-dischargeable debts into one manageable monthly payment

Understanding Your Options

The key takeaway is that while bankruptcy may not eliminate every debt, it can provide tremendous relief from the debts that are weighing you down most. In many cases, discharging the debts that can be eliminated frees up enough income to comfortably manage the obligations that remain.

If you are considering bankruptcy and want to understand which of your specific debts may be dischargeable, I encourage you to schedule a free 30-minute consultation. We can review your financial situation and provide clear guidance on what to expect.

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