Important Things One Needs to Know about Dischargeable Debts under Chapter 7

Finding themselves with insurmountable debt became common for many Americans from 2008 to 2012 due to the financial crisis which resulted to mass lay-offs, underemployment and prolonged unemployment. It cannot be denied that millions of wage earners in the US receive just enough salary which will help see them through all their needs until their next salary date; thus, any deduction in pay, much more, losing the chance to earn, can result to devastating financial problems.

Besides loss of job and reduction in income there are also other situations that can worsen an individual’s financial situation, such as natural calamity, divorce, or an unexpected health problem. All these can lead to successive failures in paying monthly credit card bills, personal loans and even mortgages. Before long, all debts will have gone up to an amount that makes it impossible for the debtor to settle, resulting to the debtor having endless worries and getting hounded by creditors or collecting firms to force him or her to pay.

While so many debtors end up facing lawsuits, lose a part of their monthly pay due to garnishment of their wages, their properties due to foreclosure or their vehicles due to repossession, others try to find ways which can help save them from their overwhelming financial crises and which will allow them to have control over their financial lives once again.

According to the Dallas bankruptcy lawyers at Gagnon, Peacock & Vereeke, P.C., one such way is through the filing of bankruptcy, a legal means which will help debtors regain control of their finances. Filing bankruptcy is allowed by the Bankruptcy Code, which the US Congress passed into law in 1978. There are different Bankruptcy Chapters under this 1978 Code, namely, Chapters 7, 9, 11, 12, and 13, each designed to address a debtor’s unique financial situation.

Chapter 7, for instance, which is also called liquidation bankruptcy, involves liquidation of a debtor’s “non-exempt” properties, such as a second house, a vacation home, an expensive musical instrument (which is not necessary to a debtor’s profession or trade), and forms of investment, like cash, stocks and bonds. A court-appointed trustee will take charge of the liquidation of these non-exempt properties and use whatever amount is earned from the sale to pay all of the debtor’s non-dischargeable debts, which may include:

  • government-imposed penalties
  • child support
  • spousal support or alimony
  • federal, state, and local taxes which became due not more than 3 years ago
  • court fees
  • debts resulting from personal injury or wrongful death
  • student loan, unless paying this continuously will cause undue hardship to the debtor

Any amount left from the sale of the properties will be returned to the debtor, however, if the total amount earned is not enough to settle all debts completely, then creditors will have to accept whatever amount the court determines should be paid to them; they should also abide by the court’s decision to forgive the debtor for any balance left from the debt and to stop further collection of payment or suffer penalties under federal law.

Filers of Chapter 7 bankruptcy should know and understand, though, that their release from dischargeable debts (such as debts arising from credit card use or cash advances) and even the court’s recognition of their filing for Chapter 7 bankruptcy requires that they strictly follow court rules and bankruptcy procedures. Additionally, with regard to dischargeable debts, if a particular creditor is able to successfully object dischargeability, then debts owed to him or her will not be declared dischargeable.

Having some debts discharged is one of the best benefits of Chapter 7 bankruptcy, but to be able to enjoy this, debtors should make sure that they never hide any property to deceive creditors, are able to provide the court with all necessary tax documents, and do not commit any fraud, such as perjury, in connection with their bankruptcy case. These matters, and the so many others connected with Chapter 7 bankruptcy can be much more complicated than what anyone thinking of filing for bankruptcy may actually expect.

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