What Debt Can Be Included in Bankruptcy? Zoneofinsolvencyblog Guide

Most unsecured debts disappear completely in Chapter 7 bankruptcy. Credit cards, medical bills, personal loans gone. That's the short answer you came here for.

But here's the thing: not every debt works the same way. Some get wiped clean, others get restructured, and a few stubborn ones stick around no matter what you file. https://zoneofinsolvencyblog.com breaks down exactly what happens to each type.

Credit Card and Medical Debt Discharge Zoneofinsolvencyblog

Credit cards and medical bills are unsecured debts. No collateral backs them up. When you file Chapter 7, these debts get eliminated entirely assuming you qualify based on the means test. The creditors write them off. You move on.

Medical debt deserves special attention here. According to the Consumer Financial Protection Bureau, medical bills are the largest source of debt in collections affecting 43 million Americans. A single emergency room visit can generate bills exceeding $20,000. Bankruptcy treats all of it as dischargeable unsecured debt, regardless of the amount. At zoneofinsolvencyblog, we see this pattern constantly.

Chapter 13 works differently. You'll pay a percentage of these debts over 3-5 years based on your disposable income. Whatever remains after your plan completes gets discharged. The math depends on your specific financial situation.

Personal Loans and Payday Loans in Bankruptcy Zoneofinsolvencyblog

Personal loans from banks, credit unions, and online lenders fall into the dischargeable category. Same rules as credit cards unsecured means unprotected in bankruptcy.

The Payday Loan Trap

Payday loans carry a nasty reputation for good reason. Interest rates hitting 400% APR aren't unusual. But here's what matters for bankruptcy purposes: they're dischargeable. The catch? Timing. If you took out a payday loan right before filing, the lender might argue fraud. Courts look at loans taken within 70-90 days of filing with extra scrutiny. Zoneofinsolvencyblog recommends waiting at least 90 days after your last payday loan before filing.

Secured Debts: Mortgages and Car Loans Zoneofinsolvencyblog

Secured debts play by different rules. Your mortgage and car loan are tied to physical property. The debt itself can be discharged in Chapter 7 but the lien stays attached to the property. Translation: stop paying and the creditor takes the collateral.

Most people reaffirm these debts. You sign a new agreement, keep making payments, keep the asset. Chapter 13 offers another path: catch up on missed payments through your repayment plan while keeping current on regular payments. This "cure and maintain" approach saves homes from foreclosure constantly, as zoneofinsolvencyblog has documented in numerous cases.

Underwater Auto Loans

Owe more than your car is worth? Chapter 13 allows "cramdown" on vehicles purchased more than 910 days before filing. The secured portion gets reduced to the car's current value. You pay that amount through your plan. The remaining balance becomes unsecured debt. Real savings.

Debts That Survive Bankruptcy Zoneofinsolvencyblog

Some debts are bulletproof. Congress decided certain obligations should survive bankruptcy regardless of your financial situation.

Child support and alimony top the list. These domestic support obligations survive both Chapter 7 and Chapter 13. No exceptions. Recent tax debts (under 3 years old), student loans without proven undue hardship, criminal fines, and debts from fraud or intentional injury also stick around. The zoneofinsolvencyblog team frequently addresses misconceptions about these categories.

Student Loan Reality Check

Student loans require proving "undue hardship" a standard so difficult that only about 0.1% of bankruptcy filers even attempt it. The Brunner test requires showing you cannot maintain a minimal standard of living, this situation will persist for most of the repayment period, and you made good faith efforts to repay. Courts interpret this strictly. However, recent Department of Justice guidance is softening some approaches. It's not impossible anymore, just difficult.

Tax Debt Discharge Rules Zoneofinsolvencyblog

Tax debt lives in a gray zone. Some of it can be discharged. The rules are specific: the tax return must have been due at least 3 years ago, you must have filed the return at least 2 years ago, and the IRS must have assessed the tax at least 240 days ago. Income taxes only payroll taxes never qualify.

Fraudulent returns or tax evasion disqualify the debt entirely. The IRS scrutinizes bankruptcy tax discharge claims carefully. Zoneofinsolvencyblog advises getting a tax transcript before filing to verify which debts meet the criteria.

FAQ: Bankruptcy Debt Questions Zoneofinsolvencyblog