Knowing what to do about your debts or how they will be handled in bankruptcy can be confusing and overwhelming. Bankruptcy can be a helpful solution to those who are looking to wipe out some debt obligations and start over. Chapter 7 and Chapter 13 bankruptcy are two different bankruptcy types to consider when dealing with debt. Both offer various benefits and may treat debt obligations differently from each other.
Dealing with bankruptcy can be overwhelming, but it doesn’t have to be. John Dunlap is an experienced attorney in bankruptcy. He has had years of experience helping clients navigate their way through their best options. Call us today to get a free 30 minute session.
Different Types of Debt in Bankruptcy
Chapter 7 and 13 have different requirements for various types of debts. In some cases, certain debts will have higher obligations than others. However, when it comes to dealing with debts in bankruptcy, you may be wondering what type of debt is covered.
The various types of debts included in Chapter 7 and Chapter 13 bankruptcy are:
- Child Support
- Credit Card debt
- Tax debt
- Gambling debt
- Medical bills
- Student loans
- Payday loans & bank fees
Both Chapter 7 and Chapter 13 deal with debt in different ways. It is important to understand what bankruptcy will and will not cover when it comes to your debts. An attorney may be able to help you decide what debts will be solved in your bankruptcy case.
Child Support Debt
Child support obligations may vary depending on the type of bankruptcy you choose. Wondering if child support debt can be forgiven? Or even how to get rid of child support debt? When it comes to bankruptcy and child support debt, child support may not be covered in a bankruptcy. Child support debt is considered a higher priority debt and may have special obligations.
Chapter 7 Child Support
When it comes to Chapter 7 and child support payments, child support debt cannot be discharged because it is considered a priority debt. However, it will receive special treatment. This means that individuals will have to continue paying on child support payments throughout Chapter 7 bankruptcy. Child support debt is one of the first debt that gets paid under Chapter 7. However, Chapter 7 has the ability to free up other debts hanging over your head by liquidating them, which could make paying child support manageable.
Chapter 13 Child Support
Child support and bankruptcy Chapter 13 is different than Chapter 7. If you qualify for Chapter 13 bankruptcy, the child support payments that you owe have to be paid back in full through the repayment plan. This means that you can make payments on your debt throughout the approved repayment plan laid out in Chapter 13.
Credit Card Debt
Credit card debt bankruptcy is something that is also considered within Chapter 13 and Chapter 7. One of the biggest differences between the two bankruptcy types is that Chapter 7 has the goal of wiping out some debts while Chapter 13 allows individuals to make payments on some debts.
Chapter 7 Credit Card Debt
Chapter 7 bankruptcy and credit card debt allows some credit card debts to be wiped out or excused at the end of the cycle. Because credit card debts are not considered a high priority when it comes to the debts that are owed in Chapter 7, there may be little to no payments because Chapter 7 wipes out those debts.
Chapter 13 Credit Card Debt
Because Chapter 13 is a way of reorganizing your debts and your payments, Chapter 13 bankruptcy credit card debt is included in your repayment plan. Credit card debt may be paid in full, partially paid, or discharged.
Chapter 7 Tax Debt
When dealing with Chapter 7 bankruptcy and tax debt, there is a potential to have your tax debts wiped out if they meet certain qualifications. Some of the requirements include:
- Federal or state income taxes are dischargeable
- Tax returns were filed up to two years prior to filing for bankruptcy
- Taxes must be assessed at least 240 days prior to filing for Chapter 7
- Taxes must not be fraudulent
Some taxes under Chapter 7 cannot be discharged include recent property taxes, employee taxes, tax liens, withheld taxes, and more.
Chapter 13 Tax Debt
When it comes to Chapter 13 and tax debt, the Chapter 13 payment plan allows you to pay back your tax debt through the repayment plan and can potentially wipe out all of the debts. You may be able to get a payment plan that allows you to make lower payments on your tax debts and pay them out over a longer period of time. However, like Chapter 7, only certain debts can be discharged in Chapter 13 if they meet qualifications.
Chapter 7 Medical Bills
If you qualify for Chapter 7 bankruptcy, there is no limit to how much medical debt that you can discharge. Chapter 7 breaks up medical debt into a nonpriority unsecured debt. This means that it can potentially be paid within the repayment plan, but because it is listed as nonpriority, it may be wiped out when debt is discharged in Chapter 7.
Chapter 13 Medical Bills
Medical debt may be one of the main reasons individuals choose to file Chapter 13. Often, large amounts of medical debt will be paid through a repayment plan period. While they are not a non-priority debt in Chapter 13, they are still unsecured, which means that you usually pay a percentage of the medical debt back to creditors instead of the full balance.
Chapter 13 student loan debt
Unfortunately, student loans are often seen as a non-dischargeable debt in bankruptcy. It is extremely difficult to get student loans discharged, although it is possible. However, Chapter 13 may allow individuals to delay or reduce payments. Additionally, although you can’t get out of paying on student loans, an automatic stay stops creditors from harassing you about your debt.
Although most of the time student loans can’t be wiped out or discharged in bankruptcy, there is a very rare case when you may be able to prove undue hardship. This means that you would take a test that would determine that the burden of student loans is excessive This is ultimately determined by the Banner Test, where you are tested on poverty, persistence, and good faith.
The test will require that you prove you cannot meet the minimal standard of living, your financial situation is more than likely to continue for a significant period of time, and that you have at least made a decent effort to pay back some of your student loans. However, even with the Banner Test, it is still very difficult to be granted an undue hardship.
Payday Loans and Bank Fees
When dealing with payday loans in Chapter 7, the loans may be discharged or wiped out. Additionally, in Chapter 13 you may have the ability to pay some of them back through the repayment plan.
Although payday loans can be taken care of in bankruptcy, fraudulent loans can’t be. If a creditor suspects that the loan was taken out without an intent to pay, they may try to challenge your payday loans and stop the loans from being wiped out. An experienced attorney can help you figure out the best option for your case.
Bank Set-offs and Bank Fees
When it comes to debts and bank fees, you may experience bank set-offs. Bank set-offs may occur when a bank removes money from one of your accounts to cover payments you missed on a loan owed to them.
Although both Chapter 7 and Chapter 13 offer different options for bank fees and bank accounts, both may be “set off” from banks. A bank’s right to “set off” the debts you owe them means that the bank may keep the funds you have in your checking or savings as a form of payment for what you owe them. Additionally, some banks may freeze accounts when bankruptcy is filed.
Avoiding set-offs and preventing freezing of your accounts can take some extra steps while filing for bankruptcy. Working with an experienced bankruptcy attorney may help you solve cash flow problems during bankruptcy related to bank fees and set-offs.
Contact Us for A Free Bankruptcy Consultation
Knowing what can and can’t happen to your debts during bankruptcy can be confusing. An experienced attorney like John Dunlap can assist you in finding the best solution for you. Call us for a free 30 minute session.