Is debt really forgiven during bankruptcy?
Bankruptcy is a legal process that allows the person requesting relief, known in the courts as the petitioner, to reorganize or discharge their debt. Media outlets often explain this process as a way to get rid of debt and move on with your life. But is it really? What does it even mean to “get rid” of debt when it comes to bankruptcy?
The truth is that in some situation’s bankruptcy is often the best financial option.
When is bankruptcy the best financial decision?
There are situations when it makes more sense to go through bankruptcy than to keep on attempting to pay off debt. Experts with the National Foundation for Credit Counseling recommend looking at your income, debts, and assets to help guide this decision. If other options like attempts to renegotiate debt do not work and you owe more than your assets and income can manage, bankruptcy may be the right choice.
In some situations, bankruptcy can even help your credit score over the long run. This is discussed in our previous article, When is bankruptcy good for my credit score?
Those who find themselves considering relief by filing for bankruptcy will likely have several questions, including: what kind of debts qualify and what does it mean to have debt forgiven through bankruptcy?
#1: What type of debt is forgiven in bankruptcy?
There are certain debts that do not qualify for relief through bankruptcy. The court considers these types of debts as exempt from the process. It is highly unlikely that anyone seeking relief through bankruptcy can get rid of a financial obligation to pay child support, alimony, any debts related to willful and malicious injury of others or their taxes. There are additional situations that can result in the bankruptcy court denying the discharge of certain debts. These can include any allegations of fraudulent activity or an attempt to hide assets during the bankruptcy process.
Most other forms of debt can qualify for relief. These can include debts related to:
- Credit cards
- Medical bills
- Mortgage debts
- Car payments
- Bank loans
It is important to note that this area is evolving. In the past, it was almost impossible to get student loan debt forgiven through bankruptcy. This has changed. As discussed in more detail in a previous article, available here, there are more and more situations where consumers are getting court approval to discharge student loan debt.
#2: What does it mean to have debt “forgiven” in bankruptcy?
The legal term for the process is discharge. Debt is discharged through an approved bankruptcy petition. This means that the individual or business is no longer responsible for the debt. If the court approves your petition for bankruptcy, the creditors can no longer move forward with collections efforts and cannot contact you for payment.
If you have questions on this topic or are considering bankruptcy and you are unsure whether it’s the right choice for you, reach out to an attorney today. Our Miami bankruptcy attorneys have experience with the process and can help people identify their assets, debts, and exemptions so they can choose the type of bankruptcy that suits their circumstances. When you schedule a free initial consultation at Kingcade Garcia McMaken, you will meet with an attorney who will help you analyze your financial needs. We can assist you in identifying the best way to keep your assets and manage your finances and properties in the face of serious challenges.
