Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case of bankruptcy.
Types of Dischargeable Debt
A discharge releases individual borrowers from the legal obligation to pay previously existing debts. Other types of dischargeable debt include credit card charges; accounts from collection agencies; medical bills; past due utility bills; and dishonored checks and civil court fees not deemed fraudulent. Dischargeable debt also includes business debts; money owed according to lease agreements; attorney fees not associated with child support and alimony awards; revolving charge accounts; Social Security and veterans assistance overpayments; and in rare cases, student loans.
How to File for Bankruptcy
There are two primary ways of filing for bankruptcy. Chapter 7 bankruptcy involves the cancellation of most or all debts, depending on which debts are deemed dischargeable. It is possible that in the case of Chapter 7 bankruptcy, also known as liquidation bankruptcy, the bankruptcy trustee liquidates or sells the property of the debtor filing for bankruptcy to repay all or a portion of his debts to creditors.
Differences Between Types of Bankruptcy
Chapter 7 bankruptcy differs from Chapter 13 bankruptcy most notably in that with Chapter 13 bankruptcy, the debtor keeps his property with the understanding he is required to pay back all or a portion of his debts over a three-to-five-year period. Chapter 13 bankruptcy allows the debtor to retain assets and recover from bankruptcy quickly, provided he is able to meet the eligibility requirements such as earning enough income to repay the debt in a timely fashion. Chapter 7 bankruptcy can be more devastating to a debtor with a sizable asset base, but it is a preferable option if the debtor’s asset base is small and the amount of debt is seemingly insurmountable.