Chapter 7 is a simplified bankruptcy filing in which an individual claims bankruptcy and is then discharged from debts and is free to continue living a normal life. Also known as straight bankruptcy or liquidation, Chapter 7 is not permitted for all potential bankruptcy filers. To be eligible, individuals must meet a means test that demonstrates restricted income rendering debt repayment impossible and must be filing openly and honestly with no prior Chapter 7 filings within the past eight years or a history of fraud. In this post, we discuss the types of debts that remain after a Chapter 7 bankruptcy discharge.
Debts That Will Remain After Discharge
When you file Chapter 7, most of the debts that are limiting your financial situation can be discharged. In a discharge, a debtor is released from personal liability for consumer debt and is thus free from future legal action by creditors. Common forms of debt, like medical bills, credit card bills, collection agency charges, personal loans, and business debts are eligible for discharge, but this does not extend to everything.
To stop individuals from filing just to surrender obligations for more complex types of debt, numerous forms of debt are maintained through the filing process and are stilled owed after the settlement of a bankruptcy case, including:
- Student loans
- Recent tax debts
- Court fees
- Child support and alimony
- Debts previously ruled non-dischargeable in a prior Bankruptcy
- Debts related to criminal acts, like embezzlement or fraud
- Government-imposed fines and restitution
Debts That May Remain After Discharge
Some debts, like criminal debt, are never discharged, but others may be subject to personal situations unique to each bankruptcy case.
Student loan debt is a complicated matter and remains after a Chapter 7 discharge most of the time.
Tax debt may be discharged in Chapter 7 filing, but this entirely depends on the circumstances in question. To discharge tax debt it must meet the following requirements:
- The debts are related to income tax. Only income tax debts can be discharged; payroll taxes and other forms of tax are not eligible under Chapter 7
- The debts are at least three years old. Recent income tax debt does not qualify.
- A tax return was filed at least two years prior.
- The IRS assessed taxes due at least 240 days before the bankruptcy filing.