The goal when you file for bankruptcy is to halt aggressive collection activity that threatens your financial stability or to get rid of some of your debt. The discharge that you receive at the end of the bankruptcy process absolves you of the obligation to repay certain debts, while the automatic stay you receive when you file will temporarily stop collection calls, lawsuits and other collection efforts.
Wiping the slate clean can help you protect your most valuable assets, like your home, or prevent a temporary hardship from having permanent financial consequences. Which debts will you be able to discharge with a successful bankruptcy filing?
Bankruptcy primarily affects unsecured debts
Many of your debts are unsecured, which means there are no assets that serve as collateral for the money loaned. Credit cards and hospital bills are examples of unsecured debt.
Most kinds of unsecured that are eligible for discharge in a bankruptcy, but some are not. Student loans are only eligible for discharge in specific situations. Most people will retain their student loans even after bankruptcy. Money owed due to a court judgment or for past-due child support is also likely not eligible for discharge.
Secured debt like vehicle loans will require either reaffirmation or renegotiation if you expect to keep the collateral property. The more debts you have that are unsecured and likely eligible for discharge, the more beneficial bankruptcy may prove to be for you.
Some people find that filing a Chapter 13 bankruptcy is the better option because they can renegotiate some of their debts, like their mortgage terms. Others want the complete and quick discharge possible in a Chapter 7 filing. Understanding what debts are eligible for discharge can help you decide if filing for bankruptcy would be the right move for you.