When you are at your wit’s end when it comes to debt, filing for bankruptcy might not only seem like the best option but your only option. While filing doesn’t remove your obligation to pay all types of debt, there are a number of debts that are forgiven or discharged after you file – meaning you are no longer responsible for them after the proceedings are over. What happens to the debt during the proceedings depends on which type of bankruptcy you file. Under Chapter 7 bankruptcy, your trustee may sell off assets to pay off some of your debts. Under Chapter 13 bankruptcy, you’ll enter a repayment plan to pay back a portion of your debts before they are forgiven.
Unsecured debts are typically forgiven when you file for bankruptcy. Although credit card debt is the most common type of unsecured debt, according to Bankrate, it’s not the only type. You might have unsecured debt in the form of a personal loan from a bank or friend, as well. Although filing bankruptcy does wipe out your credit card debt in most cases, there are some exceptions to the rule. If you go on a spending binge in the months before you file, knowing that you won’t be able to pay back what you charged to your card, your creditor can object to the discharge and you might be required to pay those debts, even after the proceedings are over.
Past Due Utility Bills and Rent
Housing debt can be complicated when it comes to bankruptcies. In the case of mortgages, if you want to keep your home, you’ll have to keep paying even though the filing process relieves you of your liability to the debt. Things are a little more straightforward when it comes to other costs associated with housing – such as past due rent and utility bills. When you file, those debts are discharged, or forgiven.
Filing can also keep you from being evicted from a home you rent during the proceedings. When you file, an automatic stay goes into effect, which keeps your creditors from pursuing payments of debts. The stay also keeps landlords from getting a judgment for possession of the property if you file before they start the process of evicting you. If the landlord has already started eviction proceedings before you file, he or she might be able to continue with the proceedings depending on which state you live in.
In 2013, nearly 2 million people filed for bankruptcy as a result of medical bills, CNBC reported, meaning that about 60 percent of bankruptcies filed that year were related to high medical bills. Fortunately, medical debt is a type of unsecured debt. It is either wiped out completely when a bankruptcy is discharged, or you end up paying a small portion of it under a Chapter 13 repayment plan before it is discharged.
Other debts that can be discharged or forgiven after you file include deficiency balances on car loans or mortgages, lawsuits against you, and car accident debt as long as the car accident didn’t occur while you were driving under the influence.
If you are considering filing for bankruptcy, the first step is to complete credit counseling to see if it is really the right choice for you.
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