Debts That Are Discharged in Chapter 7 Bankruptcy

Find out which debts can be canceled in Chapter 7 bankruptcy.

By , Attorney · University of the Pacific McGeorge School of Law

Filing for bankruptcy is a major life decision that can affect your financial and personal life for many years, and it's important to understand what Chapter 7 can and cannot do for you. If you're eligible, Chapter 7 bankruptcy can relieve you from most of your unsecured debt burden, and even get rid of secured debts in certain cases. Here's a rundown of what can be discharged (wiped out) in Chapter 7 bankruptcy.

For a list of debts that can't be discharged in Chapter 7, see Debts that Survive Chapter 7 Bankruptcy.

You Can Discharge Most Unsecured Debts in Chapter 7 Bankruptcy

You can wipe out unsecured consumer debts like medical bills, utility bills, back rent, personal loans, some government benefit overpayments, and credit card charges. These unsecured debts are dischargeable in Chapter 7 bankruptcy. The key is that the debt is "unsecured' and isn't a debt you must pay under bankruptcy law, such as student loans, fines and citations, and debts incurred due to impaired driving.

What Is an Unsecured Debt in Chapter 7 Bankruptcy?

Unsecured debt is an obligation that isn't backed by collateral. For instance, the debt is unsecured if you didn't agree that the creditor could take the property purchased on credit when you entered the credit contract.

By contrast, if you have a mortgage or car payment, you likely agreed that the creditor could attach a lien to the property and take your house or car if you failed to make the payment, sell it, and use the proceeds to pay the note. This type of debt is a secured debt. Payment of the debt is secured by collateral.

"Nondischargeable Debts" You Can't Wipe Out in Chapter 7 Bankruptcy

Not all unsecured debt is dischargeable, and it's simpler to list the debts that don't go away than it is to list the debts you can wipe out. Here's a list of debt types you should watch out for because you'll likely have to repay them after your bankruptcy case.

Student Loans

A student loan is unsecured, but you'll remain responsible for paying it unless you can demonstrate that you won't be able to repay the loan in the future. Find out the specifics of student loans and bankruptcy.

Debt Incurred Through Fraud or False Pretenses

Money, property, or services obtained under fraud or false pretenses aren't dischargeable. Fraud can be as simple as purchasing items on credit with no intention of repaying the debt. A false pretense can be a misrepresentation to a creditor to obtain credit. For instance, overstating your income on a loan application to reach the minimum to qualify for the loan would likely fall within the false pretenses doctrine.

If you're concerned about fraud, you should be especially wary of filing for bankruptcy. The ramifications can extend from being denied a discharge of a single debt to the entire case—even fines and prison time. Find out when a creditor might file an objection to your bankruptcy case.

Luxury Purchases or Cash Advances Obtain Soon Before Filing for Bankruptcy

In some cases, an otherwise dischargeable debt might not be discharged in Chapter 7 if you incurred the debt soon before your bankruptcy filing. Here are the rules:

Debts incurred within 90 days of your bankruptcy filing for luxury goods or services for $800 or more owed to a single creditor are presumed nondischargeable. The same is true for cash advances of $1,100 or more taken within 70 days of your filing. Amounts apply to cases filed between April 1, 2022, and March 31, 2025.

These debts aren't dischargeable because this type of activity so soon before filing for bankruptcy suggests that you had no intent to repay the debt. If the creditor objects to the charge, you'll need to prove that the purchase was reasonable given the circumstances. When faced with this situation, many debtors choose to enter into a settlement agreement with the creditor to pay for the charge, given the high cost of litigation.

Learn more in Can I Use my Credit Cards Before Filing for Bankruptcy?

Lawsuit Judgments

Money judgments are dischargeable, with a few exceptions. However, it's usually prudent to file for bankruptcy before getting a lawsuit judgment. Why? A money judgment allows a creditor to put a lien against your real estate and personal property, and many liens don't go away in a bankruptcy case.

Although the creditor won't be able to force you to make payments on the debt, the creditor can take steps to acquire and sell the encumbered property (the property the lien is attached to). Some creditors don't have a problem waiting for you to sell the property and taking what is owed out of the proceeds. If you wait years to sell, the interest can build up to the point that the amount owed doubles, triples, or more. Find out more about releasing liens in bankruptcy.

Certain Tax Debts

Income taxes may be discharged if:

  • the tax return was filed more than two years before you filed your bankruptcy petition
  • there was no fraud or tax evasion involved
  • the taxes were first due at least three years before the bankruptcy petition was filed, and
  • tax liability was assessed more than 240 days before you filed bankruptcy.

When You Can Discharge Secured Debts in Chapter 7 Bankruptcy

Any secured debt can always be discharged, but you won't be able to keep the property serving as collateral, such as your house or car. Why? Because the attached lien won't go away in bankruptcy. The creditor will still be able to take the property if the debt remains unpaid. For instance, you can discharge a mortgage or car loan, but you'll need to give up the house or vehicle.

If you don't want or need the secured property, it can be to your advantage to let the creditor take it back. You'll indicate your intent to surrender the property when you fill out your bankruptcy paperwork. You don't have to deliver the property to the creditor, but you must cooperate with the creditor's repossession. Sometimes creditors won't bother to repossess small items because it's not worth the expense of picking them up.

If, however, the creditor failed to take a security interest in the property, you might be able to keep the property. An example would be if a car dealer forgot to place a lien on your car and the value of your car is within the exemption for motor vehicles. The dealer's claim would be unsecured, and you could keep the car as exempt property.

But don't count on this because it's rare and you'd have to be able to protect the entire car value with a bankruptcy exemption. Otherwise, the Chapter 7 trustee appointed to your case will sell the car, return your exemption amount to you, and use the remaining funds to repay creditors. Learn more about keeping a car in Chapter 7 bankruptcy.

Need More Info?

We want to help you find the answers you need. Go to AllLaw's Topic page for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

Updated April 25, 2022

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