What Unsecured Debts are Discharged in Chapter 7 Bankruptcy?
When facing overwhelming financial pressure, understanding your options is the first step toward relief. For many, Chapter 7 bankruptcy offers a path forward. In a Chapter 7 bankruptcy, the court legally eliminates (discharges) most of your unsecured debts, including credit card balances, medical bills, personal loans, and past-due utility bills.
A “discharge” is a legal court order that means a person who files for bankruptcy is no longer personally required to pay back a specific debt, and the creditor is legally barred from making any attempt to collect it. This article provides a clear, comprehensive list of the debts filers can and cannot discharge in Chapter 7, explains the process, and answers the most common questions people have.
A Clear Guide to Dischargeable Debts in Chapter 7
The power to discharge these debts is granted by federal law under 11 U.S. Code § 727 of the U.S. Bankruptcy Code. Below is a breakdown of the most common unsecured debts that are typically wiped out in a successful Chapter 7 case.
| Type of Unsecured Debt | Typically Discharged? | Key Considerations & Exceptions |
| Credit Card Debt | Yes | Charges for luxury goods (over ~$800) or cash advances made within 90 days of filing may be challenged by creditors as fraudulent. |
| Medical Bills | Yes | All past medical and dental debt is generally dischargeable, regardless of the amount or type of procedure. |
| Personal & Payday Loans | Yes | This includes unsecured bank loans, lines of credit, and high-interest payday loans. |
| Past-Due Utility Bills | Yes | While past debt (electric, gas, water, internet) is discharged, you will need to pay for services used after your filing date. Many Utility companies will require payment of prior services before allowing future services to continue. A security deposit may be required to continue service. |
| Old Rent & Leases | Yes | Discharges debt from a broken lease or past-due rent. If you are in a current lease, you can break the lease, but you must discontinue with the leased property immediately upon filing. Continued use of leased property may constitute an assumption of the lease and hold you to those payments. Filing for chapter 7 bankruptcy does not automatically stop an eviction if the landlord already has a court-ordered judgment of possession. |
| Civil Judgments | Yes | Money judgments from lawsuits (e.g., for car accident damages not covered by insurance) are typically dischargeable. A judgment that is recorded will remain attached to any real property you own even after filing for chapter 7 bankruptcy. Recorded judgments become a lien on real property and can be satisfied by refinancing, selling the property or paying the debt directly to the creditor. |
| Business Debts | Yes | If you are personally liable for debts from a sole proprietorship or partnership, these can be discharged. |
What Debts Are NOT Discharged in Chapter 7?
It’s equally important to understand which debts bankruptcy typically does not eliminate. These are known as “non-dischargeable” debts and will remain even after the bankruptcy case is complete.
- Domestic Support Obligations: Child support and alimony.
- Most Tax Debts: Recent income taxes (usually within the last 3 years), payroll taxes, and tax fraud penalties.
- Student Loans: These are extremely difficult to discharge and require proving “undue hardship” in a separate, often costly, legal action.
- Debts from Fraud or Malicious Acts: Debts incurred through fraudulent activity or for causing “willful and malicious injury.”
- Court Fines and Criminal Restitution.
- Debts from a DUI-related incident.
From Petition to “Fresh Start”: The Chapter 7 Discharge Process
Knowing which debts qualify is only half the story. Understanding the process helps manage expectations for the journey ahead.
Step 1: The Automatic Stay. The moment the bankruptcy petition is filed with the court, a powerful protection called the “automatic stay” goes into effect. This immediately stops most collection actions, creditor lawsuits, and wage garnishments while the case is pending.
Step 2: The Meeting of Creditors. About a month after filing, the filer will attend a short hearing called the “341 meeting” or “meeting of creditors.” Despite the name, creditors rarely appear. The filer will meet with the court-appointed bankruptcy trustee (not usually a judge) to review the petition and answer questions under oath.
Step 3: The Discharge Order. Approximately 60 to 90 days after the 341 meeting, assuming there are no objections or complications, the court issues the formal Discharge Order. This is the final legal document that officially and permanently wipes out the eligible debts.
Step 4: Life After Discharge. Once the discharge order is issued, the court mails it to all the creditors listed in the petition. The filer’s credit report will eventually be updated to show a $0 balance and a note like “Discharged in Chapter 7” for each qualifying account. If a creditor tries to collect a discharged debt, which is illegal, the filer can send them a copy of the discharge order to stop them permanently.
Frequently Asked Questions (FAQ)
Q: Can I pick and choose which debts to include in my bankruptcy? A: No, you must list all your debts and assets in your bankruptcy petition. You cannot leave out a creditor you wish to pay back later, though you can voluntarily choose to pay anyone you wish after the case is over.
Q: Will I lose my house or car in Chapter 7? A: Chapter 7 is primarily designed for unsecured debt. Secured debts, like mortgages and car loans, are treated differently. Filers can often keep their property by using state and federal bankruptcy “exemptions” and continuing to make their regular payments on the loans.
Q: How long does a Chapter 7 discharge take? A: For a straightforward case, the entire process from the filing date to receiving the final discharge order typically takes about 4 to 6 months.
Your Path to a Financial Fresh Start
Chapter 7 bankruptcy is a powerful legal tool designed by federal law to relieve the burden of overwhelming unsecured debt and provide honest but unfortunate individuals with a true financial fresh start. The process can seem complex, but the outcome is life-changing for those who qualify.
Understanding which of your specific debts are dischargeable is the critical first step. An experienced bankruptcy attorney can provide a thorough analysis of your financial situation, protect your assets, and ensure the process is handled correctly from start to finish.
If you are struggling with debt and considering your options, contact GaudiosiLaw today for a free, confidential consultation. We can help you determine if Chapter 7 is the right path for you and guide you toward financial freedom.
