When an individual files for Chapter 7 or Chapter 13, the court frequently discharges much of their debt. When this occurs, the creditors are forced to write off the unpaid debt, consider it a loss and move on from the situation. After a bankruptcy discharge, the creditors are no longer allowed to take steps to attempt collection on any payment from the debtor.

Depending on which bankruptcy type someone files, there may be specific debts that they remain responsible for repaying. Regardless of bankruptcy, debtors are typically required to settle secured debts such as vehicle loans and mortgage payments. This is achieved through repayment plans or asset selling to pay the debt balance.

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Generally speaking, specific categories of unsecured debts must also be repaid, including student loan debt, alimony and child support payments, and some tax invoices. Individuals can find information regarding these exceptions in the bankruptcy code, but speaking to a bankruptcy attorney may be more straightforward.

However, when all is said and done, the creditor is typically responsible for covering the cost of any discharged debt.

How Debt Discharge Works

When someone files for bankruptcy, their creditors can no longer pursue payment. When the bankruptcy court discharges the debt, the process releases all liability for repayment. While some people choose to repay their debts voluntarily, they are under no legal obligation to do so.

Individuals considering bankruptcy filing should consult an attorney before paying any debts. The bankruptcy court has the final determination regarding which payments are deemed to be a priority. While paying down debts seems responsible and noble, some payments made just prior to a filing can raise some eyebrows. Speaking with an attorney at this point is the most prudent course of action. By retaining professional counsel, any payments made will be made according to bankruptcy law and, therefore, won’t jeopardize the legal case.

As stated above, even those who choose to file for bankruptcy may still be legally liable to repay some debts. These debts may include:

  • Student loans
  • Child support obligations
  • Federal taxes
  • Other categories of non-dischargeable debt

If you are in a financial crisis and hold these types of debts, it is best to speak with an experienced bankruptcy attorney to discuss your available options.

In addition, some creditors may also have the right to continue collection action even after a bankruptcy filing. Therefore, knowing about your legal rights and obligations before filing for bankruptcy is essential.

In Conclusion, Who is Paying For the Debt?

So if the individual who successfully has their debts discharged during bankruptcy isn’t paying the bill – who is?

The reality is that many debts will remain unpaid. If someone files for bankruptcy and the court denies any creditor requests for an exception, the debt will never be paid. In these cases, most creditors “write off” the debt, making them eligible for tax incentives to make up for the money they’ve lost. Additionally, the lenders originating these debts have often sold past-due accounts to bill collectors. You’re often working with these third-party debt collectors by the time you file for bankruptcy.

Bankruptcy is a complicated process, and the case may be dismissed if not navigated correctly. Hiring a qualified and experienced bankruptcy attorney is your best strategy for seeing a bankruptcy through to a successful conclusion. How would your life look if you were finally out from under your crippling debt obligation? It’s time to find out.

Call Richard V. Ellis, Sarasota bankruptcy attorney, to get started.