In bankruptcy there are many terms that are important to understand, especially if you are on the brink of filing or not. Essentially, bankruptcy is done as a means of cancelling out a personas debt that has grown too large to handle. Unfortunately, many people often think that by filing for bankruptcy they will receive a "get-out-of-debt-free" card; when that is not really the case. While under bankruptcy, there is a lot of debt that will be eliminated; there are also various forms that will not. For this very reason, it is important to discuss with your bankruptcy attorney in order to determine what path of debt elimination is most effective for you.
First off, a dischargeable debt is something that you owe that will be eliminated when you file for bankruptcy. So, once you receive the discharge or are approved for the bankruptcy, you are no longer responsible to pay back the creditors for that specific amount of debt. This often times includes credit card debt, personal loans (not college loans), medical bills and utility bills. These debts; however, are treated differently depending on the type of bankruptcy Chapter you file for. Chapter 7 means that you are filing for as much debt elimination as possible, because you are considered to have very little or no assets available to you anymore. Basically, the court will decide that you have nothing even left to sell to your creditors to pay off the debt, and therefore your debt under this chapter will be generally wiped clean. The tricky part with bankruptcy is the fact that discharged debt just eliminates your own liability for the debt you have. Say you still own a house or a car, as long as you can at least maintain those payments they will still belong to you; however, if you stop, the bank can take control of them in order to collect that debt you owe them.
Under Chapter 13 bankruptcy, you will be filing for what they call a debt reorganization plan rather than an altogether elimination deal. Many people who are deep in debt, though life is still manageable will often choose this route as the time period tends to be shorter (ranging between 3 to 5 years). Under this chapter your debt is technically not discharged until the end of your repayment of the debt, depending on your current assets, expenses and level of income at the time you file for bankruptcy. It also depends on whether you have secured debt or not, this would include something like your car loan or a mortgage. If you have secured debt, then you are given two different options under this chapter. First, if you decide keeping your car is important and you desire to keep making your payments during your bankruptcy time frame, and if you are able to meet certain requirements along the way there is a chance that your principal balance will eventually be reduced by using a bankruptcy cramdown. If you decide that giving up your car is best, as well as your own liability for it, then the loan will be discharged at the end of your bankruptcy plan.
In a quick summary, non-dischargeable debts differ from the above because their being paid off is a priority, even under bankruptcy. For example, a father paying his ex-wife child support money is very important because that money is what helps feed the kids; whereas you're paying off your old college debt is important though no one's life is at stake because of it. Other non-dischargeable debts include alimony payments, criminal fines, restitution and penalties, tax obligations (though not all), student loans (in some cases) as well as any debt that you acquired through fraudulent means. These types of debts are usually not included when you file for bankruptcy, meaning that you are still entirely responsible to pay them off.
How then, are these debts treated in your bankruptcy? First off, as briefly mentioned above, depending on the priority level of the payments being made will determine how your bankruptcy plan is affected. In most cases, debt in this category will take precedence and will need to get paid off. Under Chapter 7 any assets that are left to your name will be used to pay this off. In Chapter 13 this debts will need to be eventually paid off during your repayment plan period and will also take priority. Your debt will not be deemed entirely discharged until all these are paid off.
Contact a bankruptcy lawyer in your area to learn more!