What Debts Can and Cannot Be Discharged in Chapter 7 Bankruptcy?
March 11, 2025
Financial troubles can hit you when you least expect them. If you're grappling with debt or other complicated money matters, you need a skilled bankruptcy attorney to get out of debt and show you how to avoid them in the future.
At Deborah Brooks & Associates, P.C., I have helped clients find their way out of bankruptcy, foreclosures, repossession, and more. It doesn't matter how you got into your current financial trouble; I will explain your options, and together, we will put together a plan to help you secure the best possible outcome. If you're in Oklahoma City or anywhere in Western Oklahoma, call me to schedule a consultation.
Now, let's explore Chapter 7 bankruptcy, specifically, what debts can or cannot be discharged in a Chapter 7 bankruptcy.
Understanding Chapter 7 Bankruptcy
Chapter 7 bankruptcy, or "liquidation bankruptcy," allows individuals or businesses to eliminate most unsecured debts by liquidating non-exempt assets. This process provides a fresh financial start, though certain debts, like student loans or child support, typically cannot be discharged.
In addition to discharging unsecured debts, Chapter 7 bankruptcy also automatically stops creditors' collection actions. Creditors cannot contact the debtor for payment or take legal action to collect the debt during bankruptcy.
A major benefit of Chapter 7 bankruptcy is that it can be completed relatively quickly, usually within a few months. This makes it an attractive option for those facing overwhelming debt and financial struggles.
However, filing for Chapter 7 bankruptcy also comes with some drawbacks. The debtor may have to surrender non-exempt assets such as second homes, luxury items, or investments to be sold and distributed among creditors, which can significantly impact their financial future.
How Chapter 7 Bankruptcy Works
Let's look at how Chapter 7 bankruptcy works and what you can expect if you decide to file for it.
Eligibility requirements - Individuals must pass the means test, which compares income to the median income in their state.
Non-exempt vs. exempt assets – Some assets, such as a primary home and personal belongings, may be protected from liquidation.
Automatic stay protection – Once Chapter 7 is filed, creditors must immediately stop collection efforts, including wage garnishments and lawsuits.
Timeframe for discharge – A typical Chapter 7 case takes about three to six months from filing to discharge.
Understanding which debts can and can’t be discharged is key when determining if Chapter 7 is the right option.
Debts That Can Be Discharged
Many types of unsecured debt can be wiped out in Chapter 7 bankruptcy, allowing individuals to move forward without financial burdens.
Credit card debt – Most credit card balances, including interest and late fees, can be eliminated.
Medical bills – Hospital charges, doctor fees, and other medical expenses are dischargeable.
Personal loans – Unsecured loans from banks, credit unions, or family members can be wiped out.
Utility bills – Past-due balances on electricity, gas, water, and phone bills are typically discharged.
Old lease and rental obligations – Unpaid rent from previous leases may be included in the discharge.
Judgments from lawsuits – Most civil judgments, excluding those related to fraud or willful injury, can be discharged.
While these debts can be eliminated, some financial obligations will remain even after bankruptcy.
Debts That Can’t Be Discharged
Certain debts are protected under bankruptcy law and must still be repaid even after a Chapter 7 case is completed.
Child support and alimony – These obligations remain fully enforceable.
Most tax debts – Some older income tax debts may be discharged, but not recent tax liabilities and payroll taxes.
Student loans – Unless extreme hardship is proven, student loans remain after bankruptcy.
Debts from fraud or willful misconduct – If a creditor proves that a debt was obtained through fraud or intentional wrongdoing, it can’t be discharged.
Fines and penalties – Court-ordered fines, traffic tickets, and restitution obligations remain payable.
Certain secured debts – If an individual wants to keep secured assets like a home or car, payments must continue.
Managing Secured Debts in Bankruptcy
Secured debts are backed by collateral, meaning creditors can repossess property if payments aren’t made. In Chapter 7 bankruptcy, you have a few options for handling secured debts:
Reaffirmation agreements – This allows individuals to continue making payments on secured loans and keep the property.
Surrendering collateral – If making payments is no longer feasible, individuals can return the property and have the remaining debt discharged.
Redeeming property – By paying a lump sum equal to the current value of an item, individuals may be able to keep it while eliminating the remaining loan balance.
Deciding how to handle secured debts requires careful consideration of financial circumstances and future obligations.
When Chapter 7 May Not Be the Right Choice
While Chapter 7 offers relief to many, it’s not always the right solution for every financial problem. Here are some factors to consider:
Excessive non-dischargeable debts – If most obligations fall into the category of non-dischargeable debts, Chapter 7 may not provide the relief needed.
Risk of losing valuable assets – If an individual owns significant non-exempt property, it may be more beneficial to explore alternative debt-relief options.
Recent bankruptcy filings – Individuals who have filed for bankruptcy in the past may not be eligible for another discharge immediately.
Desire to protect co-signers – If a debt has a co-signer, the other party may still be responsible for repayment.
For individuals who don’t qualify for Chapter 7 or need a different solution, Chapter 13 bankruptcy or debt negotiation may be better alternatives.
Rebuilding Credit After Chapter 7
Filing for Chapter 7 will impact your credit, but there are ways to rebuild financial health over time. This is how you can do it:
Review credit reports – Check for errors and make sure discharged debts are marked correctly.
Create a budget – Manage your expenses wisely to prevent future financial issues.
Get a secured credit card – Use a secured credit card responsibly to establish a positive credit history.
Make on-time payments – Pay the remaining bills promptly to improve your credit score.
Build an emergency fund – Savings can prevent reliance on credit for unexpected expenses.
With time and financial discipline, you can improve your credit standing and regain financial stability.
Reach Out to a Bankruptcy Lawyer
Filing for Chapter 7 bankruptcy can provide a path toward financial freedom, but knowing which debts can and can’t be discharged is critical. At Deborah Brooks & Associates, P.C., I offer personalized guidance to help you work through your financial challenges. Serving Oklahoma City and Western Oklahoma, I can help you explore your options and build a brighter future. Call now to discuss your bankruptcy case.