If you’re considering bankruptcy as an option to eliminate your debts, you’ll want to know which debts are included in a bankruptcy filing. Unfortunately, the creditor usually has to agree to write off a debt. In addition, the person filing for bankruptcy doesn’t have to include every single debt in their bankruptcy filing. Here are some debts covered by bankruptcy.
1. Credit Card Charges
Usually, unsecured credit card debts are discharged in a bankruptcy filing. These debts are primarily high-interest loans. Those who have a charge card instead of a credit card (meaning you pay the balance in full each month) may or may not be able to discharge these debts through bankruptcy, depending on the issuing bank’s policies and state laws.
2. Personal Loans and Mortgages
The debt usually isn’t dischargeable if you have taken out a personal loan or a mortgage (a home or car loan). In some cases, depending on state law, you may be able to include personal loans in bankruptcy if the creditor writes them off. If there is a dispute about whether the creditor has written off the loan, you may want to consult with a local consumer advocate or attorney for help.
3. Collection Agency Accounts
Collection agencies have a difficult time collecting debts from people filing for bankruptcy. However, if you owe money to these companies or someone else with a lien on the debt, meaning another creditor wants repayment of the debt before the collection agency does, those debts may or may not be discharged in bankruptcy. If you owe money to an agency, ask them about their policies regarding these debts.
4. Child Support Payments
Child support is normally dischargeable in most states, but it can be hard to prove that you’ve paid these payments and shouldn’t have overpaid them under strict guidelines in some states. Child support isn’t discharged in other states until a court decides on your case.
These payments are in court and intended for the child’s physical, emotional, and educational needs. According to a recent study, more than 30 percent of debtors filing for bankruptcy are unemployed, which is expected to rise. If you don’t have the resources to pay child support, seeking legal advice may be in your best interest before filing a bankruptcy case.
5. Overdrafts and Unsecured Loans
This debt is included in your bankruptcy case. However, you’ll have to prove that the debt is due to financial hardship and you have made a substantial effort to repay the debt. A few states do not allow overdraft debts to be discharged in bankruptcy, so it is wise to check with an attorney before filing your case. Many debtors decide not to include the overdraft debt in their filings, resulting in collection expenses and fees for the account.
6. Catalogue Debt Collection
Catalog debt collection, also known as third-party debt collection (TPDC), is a charge placed on your credit cards and bank or other financial accounts. The original creditor transfers these debts to a company called “a debt buyer,” which takes in about 80 percent of the funds collected from you for these debts.
Due to financial difficulties and bankruptcy, thousands of TPDC companies have gone out of business by filing bankruptcy. You must shop around for a TPDC company and make sure they are collecting on your debts.
7. Repossession Deficiency Balances
A repossession deficiency balance is an amount a creditor demands you pay to sell your vehicle or other property. Usually, this debt is not discharged in bankruptcy. However, some creditors may take a loss in court and agree to write off this debt when you file for bankruptcy.
If this happens, the creditor must file an affidavit with the court stating that you have paid the deficiency amount. Also, be aware that if you are still making payments on a loan for an item you’ve lost and sold to someone else, those payments are still included in a bankruptcy, even if they’re past due.
8. Store Cards
Store cards are usually a form of credit offered by a retailer. They may help you get merchandise without carrying large amounts of cash, and they can help you get discounts on future purchases. However, these debts aren’t normally dischargeable in bankruptcy. These cards, and any loans used to pay for them, are considered “nonpriority” debts. They accrue interest the same as other debts, but the creditor only gets paid once your payment is 10 percent or more past due.
Although you may need to pay back debts in a bankruptcy filing, you will not have to pay them all at once. Certain debts may be discharged depending on the type of debt and your ability to repay it. When it comes to personal bankruptcy, there are many options for you to prepare for the process.