Chapter 7 will allow you to discharge most of your debts and still keep some exempt property such as your homestead, your vehicle, and personal possessions. However, according to the website of Gagnon, Peacock, Vereeke, some debts are non-dischargeable and cannot be wiped out. These include:
- Back child support and other types of family support
- Debts for DWI (driving while intoxicated) personal injury
- Traffic tickets and criminal restitution
- Income tax and other tax debts within the last three years
- Debts not included in your bankruptcy filing
The last item happens more often than it should. In most cases, this is because the filer decided to accomplish the forms on their own in the mistaken believe that they are saving money by not enlisting the help of a bankruptcy lawyer. This is a false economy, especially when a creditor files an objection to discharge for a dischargeable debt. This may include:
- Credit card debt more than $1,150 incurred within 60 days of filing for luxury goods or services
- Debts incurred fraudulently, such as by providing false information in the application
- Debts incurred from the willful destruction of property
It should be noted also that lenders that hold a lien on your home or vehicle retains the right to take possession of these properties, even if they fall under state or federal exemptions. If the lender does repossess the property, you are still entitled to the amount of your equity. For example, if you had a car worth $5,000, but you still owe $3,000 on it, then your equity is $2,000. The lender can get the property back and sell it, but will have to give you back your equity. You can also choose to continue paying for these secured debts in order to keep your property. However, if the exempt property was used to secure a loan, but the loan was not for its purchase, then the debt may be discharged.
There are many issues that will come up in Chapter 7 that can be confusing and scary to a lay person. It is advisable to retain the services of a competent bankruptcy lawyer in your state for the best results.