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Do you know what can be discharged in a bankruptcy?

Did you know that not all types of debt can be discharged in a bankruptcy? For example, certain types of medical debt cannot be discharged in bankruptcy, and the type of bankruptcy you file can govern what type of debt will be discharged.

A Chapter 7 bankruptcy, for example, is different from a Chapter 13 bankruptcy. In the latter, you have to file a plan for repaying many of your creditors. If you qualify for a Chapter 7 filing, you don't have to repay all creditors and many of your debts are fully discharged.

If you choose to reaffirm debts, regardless of the type of petition you are filing, then obviously those debts are not discharged. You can't, for example, keep your car or your home and not make some arrangement for payment with the creditor.

Tax and government obligations are almost never discharged in a bankruptcy. That includes back income taxes or property taxes that you might owe.

The rules for whether certain types of debt can be discharged are complex and they do change, making it difficult to keep up with if you aren't in legal circles. Working with a legal professional to understand whether your situation would be helped with a bankruptcy, and what kind of bankruptcy to file, helps you make the right decision.

If you are overwhelmed with all the information, don't feel bad. Sometimes, even the courts have a hard time agreeing on what debt is discharged. Earlier this year, the Supreme Court heard a case about whether second liens on underwater properties could be discharged in Chapter 7 bankruptcies. The original court said yes, but the Supreme Court said no.

Source: Forbes, "Debtors Can't Void Underwater Mortgages In Bankruptcy, Supreme Court Rules," Daniel Fisher, accessed Dec. 04, 2015

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Joshua Z. Goldblum, Attorney at Law
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