Debts That Are Discharged in Chapter 7 Bankruptcy

Here are the common types of debts that are wiped out in a Chapter 7 bankruptcy.

Certain types of debts will be discharged—that is, you will no longer be responsible for repaying them—when you receive your Chapter 7 bankruptcy discharge. The bankruptcy trustee will divide your nonexempt assets (if you have any) among your creditors, then the court will discharge any amount that remains unpaid at the end of your case.

Credit Card Debts

Without a doubt, the vast majority of those who file for bankruptcy are trying to get rid of credit card debts. Happily for these filers, most bankruptcies succeed in this mission. With a few rare exceptions for cases involving fraud or luxury purchases immediately prior to your bankruptcy, credit card debts are wiped out in bankruptcy.

Medical Bills

Your medical bills will be discharged at the end of your bankruptcy case. In fact, billions of dollars in medical bills are discharged in bankruptcy every year.

Lawsuit Judgments

Money judgments are almost always dischargeable in bankruptcy, regardless of the facts that led to the lawsuit in the first place. There are a couple of exceptions, but in the vast majority of cases, money judgments are discharged. Even liens on your home arising from a court money judgment can be cancelled if they interfere with your homestead exemption.

Debts Arising From Car Accidents

If the accident was the result of the debtor’s negligence—careless driving or failing to drive in a prudent manner—the debt arising from the accident can be discharged in bankruptcy. The debt might also qualify for discharge even if it resulted from reckless driving. If, however, the accident was the result of the driver’s willful and malicious act or drunk driving, it will survive bankruptcy.

Obligations Under Leases and Contracts

Most leases have severe penalty clauses that kick in if you are unable to make the monthly payment or do something else the lease requires you to do. Some debtors also have obligations under a contract, such as a contract to sell real estate, buy a business, deliver merchandise, or perform in a play. The other party may want to force you to hold up your end of the deal, even if you don’t want (or are unable) to, and sue you for breach of contract damages.

Obligations and liabilities under these types of agreements can also be discharged in bankruptcy. Almost always, filing for bankruptcy will convert your lease or contractual obligation into a dischargeable debt, unless the trustee believes the lease or contract will produce money to pay your unsecured creditors or the court finds that you’ve filed for bankruptcy precisely for the purpose of getting out of a personal services contract (such as a recording contract).

Personal Loans and Promissory Notes

Money you borrow in exchange for a promissory note (or even a handshake and an oral promise to pay the money back) is almost always dischargeable in bankruptcy.

Other Obligations

The sections above outline the most common debts that are discharged in bankruptcy, but this isn’t an exhaustive list. Any obligation or debt will be discharged unless it fits within one of the exceptions discussed in Debts That Cannot Be Discharged in Bankruptcy.

Excerpted from How to File for Chapter 7 Bankruptcy, by Attorney Stephen Elias, Albin Renauer, J.D., & Robin Leonard, J.D. (Nolo).

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