Although the timing of individual bankruptcies often reflects the need for an automatic stay, it is the discharge that motivates most people to file. If your bankruptcy is successful, the court will discharge the remaining balances owed on most of your unsecured debts reported in the bankruptcy paperwork.
However, there are certain financial obligations that will not be eligible for a discharge in a bankruptcy filing. Understanding which debts persist will help you make better decisions about your personal finances as you plan for bankruptcy.
Secured debts don’t just disappear
While you can discharge your secured debts, that may not be the best option in your case. Whether you have a mortgage that allowed you to buy your house or a car loan, you cannot discharge the amount owed on a secured debt without first giving up the collateral property. Most people pursuing bankruptcy will want to retain their homes and vehicles, which means that they will need to reaffirm or renegotiate their secured debts.
Priority debts are not eligible for discharge
There are certain unsecured debts that you may not be able to do away with when you file for bankruptcy. Outstanding amounts owed for child support or alimony are not eligible for discharge. The same is true of money owed to the courts because of criminal fines in certain cases.
Tax debts are also not dischargeable debts if they are from within the last three years. Finally, with rare exceptions, student loans typically are not eligible for discharge bankruptcy filing.
What you can discharge can help you rework your budget
For many people, secured debts or student loans may be the biggest financial obligations that they have. Being unable to discharge those debts might make bankruptcy seem less useful, but it can still help.
If you get rid of other, unsecured debts, like medical debts or credit card balances, you will have more resources to allocate toward those debts that you cannot discharge. If you don’t have to spend $200 every month paying toward your maxed-out credit card, for example, it may be easier to get caught up on that past-due child support or to bring your student loan balance into compliance.
Understanding the rules regarding what debts you can discharge can help you decide if filing for bankruptcy will provide the relief that you need.