There are some unsecured debts you cannot discharge, some debts you can discharge, and some debts which will be impossible to pay without a bankruptcy. The question posed in the title – when you should file Chapter 7 for unsecured debt – may lead to some questions. Namely, what can you discharge? What can’t you discharge? How much can you save? Should you always file? There are many more, so let’s get started.
Debts You Can’t Discharge
There are some “nondischargable” debts which you cannot eliminate. This includes child support, alimony, student loans, taxes, luxury expenses, and court judgments. If you are paying child support to your spouse, or if you’re paying alimony, a bankruptcy, logically, does not discharge this debt. Income tax is quite obvious: why would the government allow a loophole to stop paying taxes? Student loans would be another loophole: if you could discharge $100,000 in back payments, everyone would do it.
Court judgments are more complicated. On the legal reference site Nolo.com, the example is when an injury or death was caused by you’re drinking and driving. You may face lawsuits of other kinds, and therefore cannot discharge what you owe as the court ruling still stands.
Judgment Proof
Another strong point made on Nolo is whether or not you are judgment proof. The point here is, if creditors have no right to take your assets or income, you may not even need to file for bankruptcy. If you have a lot of unsecured debt, you may think filing is your only option. That’s wrong. If you have no income, if you are on disability or social security, this income cannot be taken. There are some complex laws involved here, so it’s best to consult with an experienced lawyer.
How much unsecured debts?
What is an unsecured debt? Simply, monies owed with no collateral. A secured debt would be a home. An unsecured debt would be a credit card debt. You can discharge most unsecured debts in a Chapter 7 bankruptcy, but you may not want to discharge secured debts. Why? Because, if for example you discharge your mortgage, you lose the home. Chapter 7 is a liquidation, but you do not always lose assets like your home and car, especially if you start paying on them.
When should you discharge the debt?
If you have a lot of unsecured debts – such as medical and credit monies owed – Chapter 7 can be quite effective. For one, Chapter 7 bankruptcy discharges your debts in a matter of months, stops creditor harassment, and gives you a healthy fresh start financially.
On the other hand, you may consider a debt repayment plan with Chapter 13 bankruptcy. Texas has some unique laws, including the homestead exemption, which, when used with a bankruptcy, can buy you time to pay on secured debts like your home and car with no danger of losing them.
