Which debts does bankruptcy erase, and which survive?

Debts that bankruptcy erases

For most people, the discharge takes care of the debts that pushed them toward bankruptcy in the first place:

• Credit cards and store cards
• Medical bills
• Personal loans and lines of credit
• Payday loans
• The balance left over after a repossession or foreclosure (the “deficiency”)
• Old utility and phone bills
• Most collection accounts and judgments based on these kinds of debts

There is no dollar limit and no partial forgiveness. A discharged debt is gone, the creditor is legally barred from ever trying to collect it, and, unlike debt settlement, forgiven debt in bankruptcy is not treated as taxable income.

Debts that survive

Congress made a list of debts the discharge does not reach. The ones that matter most in real cases:

• Child support and alimony. These survive every kind of bankruptcy, always. (As they should.)
• Recent income taxes. Very roughly: taxes from the last three years, recently assessed taxes, and taxes for years where no return was filed stick around. Older income tax debt can sometimes be discharged, which surprises people. That one is covered in Can bankruptcy wipe out tax debt?.
• Most student loans. They are not automatically discharged; erasing them requires a separate case showing hardship. The honest current picture is covered in Can bankruptcy get rid of student loans?.
• Court fines, criminal restitution, and most government penalties.
• Debts from a DUI injury. Anything you owe because you hurt someone while driving intoxicated.
• Debts you didn’t list. If a creditor never appears in your paperwork, their debt may survive. Complete and honest paperwork matters.

Debts a creditor can fight to keep alive

Some debts survive only if the creditor objects in time and wins. The big category is fraud: debts run up by lying on an application, or charges made when you knew you couldn’t pay and were about to file. A creditor who wants to claim fraud generally has 60 days after your meeting of creditors to raise it, and most never do. But this is why attorneys tell you not to take cash advances or make large purchases in the weeks before filing.

Secured debts are their own story

A mortgage or car loan has two parts: your personal promise to pay, and the lender’s lien on the property. The discharge erases the promise, not the lien. In plain terms: bankruptcy can wipe out what you owe on the house or car, but if you want to keep the thing, you keep paying for it. There is no free house and no free car in bankruptcy. What your options actually look like, keeping and paying, reaffirming, redeeming, or walking away clean, is covered in Will I lose my house if I file bankruptcy? and Can I keep my car if I file bankruptcy?.

Chapter 13 erases a little more

The Chapter 13 discharge, which arrives after you complete your plan, covers a few things Chapter 7 does not, including certain divorce-related property settlement debts and some older penalties. For a small set of people, that broader discharge is itself a reason to choose Chapter 13.

The bottom line

Most people who file bankruptcy discharge most of what they owe, and the debts that survive are usually the ones you would guess: support, recent taxes, student loans, and fines. The judgment call is rarely “will bankruptcy erase my debt” and more often “is what’s left after the discharge something I can live with.” That’s exactly the question the BK Checkup is built to help you think through.