How do debts get discharged in bankruptcy?

On Behalf of | Jan 4, 2022 | Bankruptcy

If you are contemplating filing for bankruptcy, you may wonder what happens to your debts when your bankruptcy is finalized. They don’t magically disappear, unfortunately. Your creditors are the ones who must absorb the hit.

The good news is that most business models are designed to absorb these losses. Consumer bankruptcy is a fact of life and a legal way to shed the heavy burden of a mountain of debt. Here’s how it works.

Your debts get discharged by the court

When you have completed all the requirements set forth by the bankruptcy court, the bankruptcy court clerk sends the signed discharge order to your creditors and the trustee(s). You and your bankruptcy attorney also receive a copy of the order.

Once the order is received, your creditors are prohibited from further collection efforts. You are free and clear of the encumbrance of debt.

Will all my debts get discharged?

That depends on the source of your debt. Below is an abbreviated list of some non-dischargeable debts:

  • Most tax claims
  • Any debts not included in your bankruptcy petition
  • Debts incurred due to “willful and malicious injuries to person or property”
  • Penalties and fines to government agencies
  • Most student loan debt
  • Most housing, condo and co-op fees
  • Court judgments stemming from a debtor’s negligence, e.g., drunk driving accidents
  • Unpaid child support and court-ordered alimony payments
  • Benefit overpayments
  • Debts arising from early access to retirement plan funds

Keep in mind that this list is not all-inclusive. Your personal circumstances may include other non-dischargeable debts, so make sure that you have a full understanding of your legal responsibilities in the bankruptcy going forth.