Filing for bankruptcy is something that might provide you with a lot of relief, but you should find out how it will affect you before you file. In most cases, people use Chapter 7 for the debt forgiveness it offers for many of their debts. You cannot receive forgiveness for all your debts, but you might for some. Here is an explanation of what happens to your debts in a Chapter 7 case.
Chapter 7 Requires Dividing Them
When you meet with a lawyer for the first time, they can explain that they must divide your debts into a few categories. They do this by separating the debts into qualifying debts and nonqualifying debts. Qualifying debts include medical bills, personal loan debts, and credit card balances, among a few others. The other category is nonqualifying debts, which might include things like back tax payments you owe and child support. The purpose of dividing the debts before you file is to show you what will happen if you file. You can learn how filing for Chapter 7 will affect you before you file, and you can base your filing decision on this information.
Qualifying Debts Receive Forgiveness
After dividing the debts and finishing filing for bankruptcy, the court will analyze all the debts. They will ensure that each debt is in the right category. From there, they will approve debt forgiveness for all the qualifying debts. Debt forgiveness means that the court essentially erases the debts. Courts often refer to this as a discharge of debts. If your Chapter 7 case forgives a debt, you will never have to pay this back. The court will also mark these accounts on your credit report as "paid in full through a Chapter 7 bankruptcy."
You Must Pay the Nonqualifying Debts
After receiving forgiveness for your qualifying debts, the court will do nothing with your nonqualifying debts in a Chapter 7 case. As a result, you will still owe the full balances on any debts that fall into this category. For example, if you owed $5,000 in child support payments when you filed for bankruptcy, you will still owe this much in child support payments after you file and complete your Chapter 7 bankruptcy case.
Are you interested in learning what will happen to your debts if you file for Chapter 7 bankruptcy? You can learn by scheduling a meeting with a bankruptcy law attorney.