What Debts Can Bankruptcy Eliminate?

Short answer: Most of them. Credit cards, medical bills, personal loans, past-due utilities, and the deficiency balances left after a repossession or foreclosure all go away in a Chapter 7. A short list survives — recent taxes, parking tickets, child support and most student loans — but the majority of what people owe can be eliminated.

The debts that go away

Credit cards are the most common by a wide margin, followed by medical bills. Personal and signature loans, past-due gas and electric, old cell phone contracts, gym memberships, and money owed for most kinds of services all fall in the same category. They are unsecured, meaning no property is attached to them, and unsecured debt is what bankruptcy is built to eliminate.

Two that surprise people: if a car was repossessed and sold at auction for less than you owed, the balance the lender is still chasing is dischargeable. The same is true of a deficiency after a foreclosure. People often assume that because the debt is tied to a house or a car, it must survive. Once the property is gone, what is left is ordinary unsecured debt.

The short list that survives

Recent income taxes generally do not discharge, though older ones sometimes do — the rules turn on how long ago the return was due and when it was filed. Child support and alimony never discharge. Neither do parking tickets and most other government fines. Most student loans survive, with a narrow exception for undue hardship.

Debts run up through fraud can also be challenged by the creditor. That is rare in practice, but it is one of several reasons that the disclosure you give your attorney at the start needs to be complete.

Surviving does not mean stuck

A debt that Chapter 7 cannot erase can still be dealt with. Chapter 13 gathers non-dischargeable debts into a repayment plan and stretches them over three to five years at a payment based on what you can actually afford, with collection stopped the whole time.

That is how people handle back taxes, support arrears, and a pile of Chicago parking tickets that has cost them a driver’s license. The debt still gets paid. It just gets paid on terms that work.

Why the list matters more than the total

Two people can owe the same amount and be in completely different positions. Eighty thousand dollars of credit card debt is a straightforward Chapter 7. Eighty thousand dollars of recent taxes and child support is not a Chapter 7 case at all.

This is the first thing worked out in a consultation, and it is why a number by itself never answers the question. What matters is who you owe.

Full transcript of the video

what debts can bankruptcy eliminate well most debts credit cards personal loans past due utilities auto repossession deficiencies home foreclosure deficiencies debts for most types of services there are some debts that don’t get eliminated recent taxes parking tickets child support most student loans however the majority of debts can be eliminated in a bankruptcy case either under Chapter 7 or under Chapter 13

Related questions

• Do I qualify for Chapter 7?
• Chapter 7 vs Chapter 13: what is the difference?
• How much does it cost to file?

About the author. David M. Siegel has represented consumer bankruptcy clients in the Northern District of Illinois since 1991 and is the author of several books on consumer bankruptcy. The firm has offices at 790 Chaddick Drive, Wheeling, IL 60090 and 10540 S. Western Ave, Suite 202, Chicago, IL 60643, and handles cases by phone for clients throughout the Chicago area.

This article is general information about Illinois and federal bankruptcy law. It is not legal advice, and reading it does not create an attorney-client relationship. Every case turns on its own facts — speak with an attorney about yours.