Does Bankruptcy Eliminate All of My Debts?

Client discussing legal documents with bankruptcy attorney

The goal of filing bankruptcy in Georgia is to obtain a bankruptcy discharge to eliminate debts that you cannot afford to pay. However, some debts are not dischargeable in a bankruptcy case, regardless of whether you file for relief under Chapter 7 or Chapter 13 of the Bankruptcy Code.

A Georgia bankruptcy attorney reviews your financial situation and advises you of your bankruptcy options. Some individuals may be eligible to get rid of all debts in bankruptcy. If not, they may eliminate most debts or submit an affordable bankruptcy repayment plan.

Debts That Can Be Discharged in Bankruptcy

Most unsecured debts are dischargeable in Chapter 7 and Chapter 13. Unsecured debts that you can eliminate by filing bankruptcy include:

  • Credit card bills
  • Medical debts
  • Most personal loans
  • Some old tax debts that meet specific requirements 
  • Old rent, electric, and lease payments 
  • Collection accounts
  • Most personal judgments
  • Deficiency amounts and liens

It is essential to discuss your debts with your bankruptcy lawyer before filing. If a debt is not dischargeable, your bankruptcy lawyer may have a strategy for handling that debt. 

For example, if you owe tax debt that would be dischargeable in six months, your attorney may advise you to wait six months to file for bankruptcy relief. By waiting, you eliminate the tax debt. 

Debts That Cannot Be Discharged in Bankruptcy

While most debts are eliminated through bankruptcy, several debts cannot be discharged. You continue to be legally liable for non-dischargeable debts after your bankruptcy case closes. Debts that cannot be eliminated in bankruptcy include:

  • Alimony or spousal support
  • Child support
  • Judgments related to damages caused by a DUI accident
  • Debts owed to a government entity, including fines and penalties 
  • Student loans (except with rare exceptions) 
  • Income taxes (with some exceptions) and other tax debts
  • Money borrowed on a credit card or personal loan to pay a non-dischargeable debt
  • Debts owed to homeowner’s associations, cooperative housing fees, and condominium fees
  • Criminal restitution payments

In addition to the above debts, some unsecured debts that would generally be dischargeable could be ineligible for a discharge. 

For example, credit card purchases of luxury goods over a specific amount and within 90 days of filing bankruptcy are generally not eligible for a discharge. Likewise, cash advances within 70 days of filing bankruptcy that are above a specific amount may be nondischargeable. 

Debts incurred through false pretenses or by fraud cannot be eliminated in bankruptcy. In addition, damages incurred because of a malicious or willful injury are usually not discharged in bankruptcy.

Exceptions for Older Income Taxes and Student Loans

In some cases, student loans and older income tax debts may be discharged in bankruptcy. 

The requirements to discharge income taxes in bankruptcy are:

  • The taxes are income-based
  • You did not commit willful tax evasion or fraud
  • The income tax debt is at least three years old
  • The tax return that resulted in the income tax debt was filed more than two years before filing bankruptcy
  • The income taxes were assessed by the taxing authority at least 240 days before you filed for bankruptcy relief

The above requirements are referred to as Rule 3-2-240. There are similar requirements to discharge student loans. Unfortunately for debtors, discharging student loans is more complicated.

The requirements to obtain a student loan discharge are:

  • You cannot maintain a minimal standard of living for yourself and your family if you are required to pay your student loan payments
  • Your current financial situation is expected to continue throughout the term of the student loan
  • You have made a reasonable faith effort to pay your student loan payments

The above requirements are referred to as the Brunner Test because they were adopted from a decision in a 1987 bankruptcy case (Brunner vs. New York State Higher Education Services, Corp.). Judges have broad discretion to decide if a debtor meets the above requirements. 

Discharging Secured Debts in Bankruptcy 

A secured creditor has a lien on collateral. If the person does not pay the debt, the creditor may seize the asset and sell it to satisfy the debt. Foreclosures and repossessions are examples of actions to seize the collateral to satisfy a debt.

You cannot discharge a secured debt. You must either surrender the collateral or continue paying the loan payments. However, if you surrender the collateral, you could discharge a deficiency judgment. A deficiency is the difference between the amount received when the collateral is sold and the loan payoff.

Schedule a Free Consultation With Our Georgia Bankruptcy Attorney

Dealing with debt problems is stressful. You may believe there is no affordable solution to your financial troubles. However, filing for bankruptcy can eliminate your debts and give you a fresh start.

Many situations could impact the discharge-ability of a specific debt. It is always best to seek legal advice from a Georgia bankruptcy attorney if you cannot afford to pay your debts. You could have one or more options for eliminating your debts.

Contact our law office to schedule a free consultation with a Georgia bankruptcy attorney to discuss how bankruptcy can help you.

Posted in: Bankruptcy