Afraid you will never be able to discharge your debt in Chapter 7 Bankruptcy because you have heard rumors that some debts are no longer dischargeable? Let's look at the facts and you will be able to decide what you can and cannot discharge [no longer have to pay] after filing for bankruptcy. We will address each by category:
Medical Expenses: When working with clients as an attorney, the biggest reason for filing was often medical bills. I use to call bankruptcy our nation's answer to national health care coverage. Call me a softie, but I don't understand how a nation as great as ours doesn't provide coverage. I've received emergency medical treatment in Japan (torn ACL) and Switzerland (food poisoning) and I know there is a better way. Until a better way is found, YES you can discharge your medical bills.
Credit Cards: I have to answer this "Yes" and "No" depending on your creditor's actions. Credit card providers may bring an adversary proceeding to prove your debt should not be discharged for two reasons: 1) that you submitted a fraudulent application to obtain the credit card, or 2) the card was used without an intent to repay. The latter item is more likely and appears more frequently in both Chapter 7 and Chapter 13 cases. Here are a few actions which may solicit an adversary complaint:
1. You requested a newly issued card and then quickly filed bankruptcy after running up a bill;
2. You increased your credit card usage shortly before filing;
3. You got large cash advances in months before filing (over $1,075 cash advance is within 60 days of filing is presumed to be non dischargeable);
4. Use of card for recent travel or vacations;
5. Pattern of borrowing on one card to make payments on others;
6. Exceeding your credit limit;
7. Using the card when unemployed or without reasonable belief that the debt can be paid;
8. Large balance at filing (this is disputable depending on circumstances);
9. Charges made after seeking bankruptcy assistance - just STOP your charging!
10. Purchase of luxury good within 60 days of the bankruptcy are presumed to be non dischargeable.
Mortgages: In today's market, it may be likely that your home is "upside down", meaning that the amount of your mortgages exceed the value of your home. If that is the case you can ask the court to "strip off" any mortgage except for the first, and make the other mortgages or liens, unsecure. Thus a second mortgage, may become an unsecure debt because there is no value in the home to support the second mortgage lien on the home. It then becomes unsecured if you request the liens be stripped. Because it then becomes unsecured debt, rather than secured debt, it will be treated like the rest of your unsecure debt, and likely discharged.
We will cover taxes, student loans and fraudulent actions in our next post.
