What Debts Can Be Included in a Personal Bankruptcy?

Man reviewing a stack of bills.

The following is presented for informational purposes only and is not intended as legal advice.

Personal bankruptcy is a legal process that allows individuals to eliminate or restructure their debts when they're unable to meet their financial obligations. It offers a fresh start for those facing overwhelming debt, and understanding which debts can be included is crucial for a successful bankruptcy.

Bankruptcy law is complicated and there may be scenarios where debts that could normally be included aren't allowed. It's usually in your best interests to consult with a qualified bankruptcy attorney. 

That said, there are some general rules of thumb that fairly common when it comes to personal bankruptcy.

Debts that can be included in a personal bankruptcy fall into two categories: dischargeable and non-dischargeable debts.

Dischargeable Debts

Credit Card Debt

Most credit card debts are dischargeable in bankruptcy. That's good news if credit card debt is part of a larger financial problem. If credit card debt is your only challenge, however, there are a ton of other options available. Make sure you've investigated all of your options before beginning the bankruptcy process. 

Medical Bills

Overwhelming medical bills can usually be included in a personal bankruptcy. If you struggling with medical debt, but don't want to pursue a bankruptcy, you could ask to set up a payment plan, attempt to negotiate down the debt, or see if your medical provider offers some form of charity care.

Personal Loans

Unsecured personal loans can often be discharged. A debt consolidation loan is an example of an unsecured loan.

Utility Bills

If money troubles have caused you to stop making payments on your water, electricity, internet, and more, bankruptcy may be able to help. Past-due utility bills can often be included in your bankruptcy.

Keep in mind, the bankruptcy may wipe away an unpaid debt to your utility provider, but you may be required to pay a deposit before certain providers may be willing to work with you again.

Collection Accounts

Debts that have been charged off and sent to collections can generally be discharged in a personal bankruptcy.

Payday Loans

High-interest payday loans can be included in bankruptcy, offering relief from predatory lending.

Non-Dischargeable Debts

Child Support and Alimony

Court-ordered child support and alimony payments are almost never allowed to be discharged in a bankruptcy. No matter the outcome of the bankruptcy, you'll still be responsible for any court-ordered financial support.

Student Loans

Federal student loans are typically non-dischargeable unless you can demonstrate undue hardship. Private student loans, on the other hand, are typically treated the same as an unsecured personal loan, meaning they may be eligible for discharge.

Tax Debts

The majority of tax debt cannot be included in a bankruptcy discharge. Tax liens, payroll taxes, and penalties for fraud can't be discharged. In fact, only income tax debt that's at least three years old can be discharged, and even then you need to check a number of boxes.

Criminal Fines, Restitution, and Debt Incurred through Fraud

If the debt is the result of you breaking the law, there's almost no chance that the debt can be discharged in a bankruptcy.  

Secured Debts

Debts secured by collateral, such as a mortgage or car loan, may result in the loss of the asset if included in bankruptcy. You may be able to secure an exception for certain property, but depending on the chapter you file, your assets may be sold to help repay your creditors.

While bankruptcy can be a complex and challenging process, it offers a fresh start for those struggling with insurmountable debt. But depending on the debts that are giving you the most trouble, bankruptcy may or may not be the right solution for you. If you want to know more about the available solutions for problems with debt, try our free, online debt analysis. We'll review your finances and debts and provide recommendations based on your specific situation. 

Tagged in Bankruptcy

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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