Domestic obligations, such as alimony and child support, aren’t dischargeable in bankruptcy. Except for in extraordinary circumstances, student loans are also ineligible for bankruptcy discharge. Some debts that may be dischargeable in bankruptcy, such as taxes or bad checks, can’t be discharged if the transaction was determined to be fraudulent.
Secured vs. Unsecured Debt
If a debt is secured, that means it is attached to a property. A mortgage is secured to your home, your vehicle loan is attached to your car, etc. Secured debts typically can’t be discharged without surrendering the attached property.
Unsecured Debts: Priority vs. Non-Priority
Some debts that are unsecured are still considered priority debts, meaning they won’t be discharged in a Chapter 7 Bankruptcy, and you may make payments towards them in a Chapter 13 but the remaining balance won’t be discharged at the end of your payment plan. Domestic obligations and tax debts are common examples of unsecured non-priority debts. The entire balance on priority debts must be paid in a Chapter 13. Student loans are an unsecured nonpriority debt, but are treated exceptionally because they can’t be discharged, and you don’t have to pay the full balance in a Chapter 13.
Consequences of Bankruptcy
If you file bankruptcy on a debt for a service you may use in the future, while you won’t legally have to pay the debt, the creditor may choose to decline providing you service in the future. Doctors, lawyers, and other professionals will be disinclined to work with you until your debt is paid. Utility and phone companies can be more difficult to replace, since you may not have a choice in provider based on your area.
Bankruptcy may affect your ability to get new loans. You will be ineligible for a home loan for 2 years after filing. In a Chapter 7, you won’t receive new lines of credit until your case is discharged. In a Chapter 13, you need permission from the court to incur new debts.
What is Assuming a Lease?
If you are renting or making payments on an asset or property, bankruptcy gives you the option to assume or reject the lease. Common leases are for apartments, vehicles, cell phones, and furniture. If you assume the lease, you will continue payment on the property as usual. If you reject the lease, you will surrender the property, but any charges for breaking your contract will be discharged in the bankruptcy.
Assuming a Lease in Chapter 7
Your trustee can choose to assume a lease for the benefit of your creditors in a Chapter 7 Bankruptcy, but this is rare. If you fail to make payments on a lease after a bankruptcy, you will be liable for this debt- it will not be discharged in your bankruptcy.
Many people in Maricopa County are facing tough financial times. Many people find themselves without a job, with medical or credit card debt, or having some kind of debt burdening them.