A misconception exists that when you file for bankruptcy in Indiana, all of your debt is automatically discharged. Though anyone suffering from financial hardship would prefer to have a clean slate to get back on their feet, it is not always the case. Much of what debt is discharged depends on what type of debt it is and under which chapter you file for bankruptcy.
At James K. Tamke, PC, our bankruptcy attorney in South Bend can help you understand what debt is dischargeable and what debt may not be. We will review your financial situation and listen to your concerns about the outcome of your bankruptcy, and we will advise you accordingly. To learn more about your options when filing bankruptcy, contact us today at (574) 289-8788 to schedule a free consultation.
Why Does the Type of Debt You Have Matter in Indiana Bankruptcy Cases?
Not all debt can automatically be discharged when you file for bankruptcy, and that is why the type of debt matters. Before you file a bankruptcy petition, you need to know what is dischargeable, what is not, and what might be under certain circumstances. The two types of debt you need to know are secured and unsecured debt.
What is Secured Debt?
Secured debt is just that: it is debt that is secured by an asset. For example, if you buy a car, and you take out a loan to buy that car, you sign a document saying that you understand that if you do not make your payments as agreed upon, the lender is able to repossess the car. That is because the money that was lent to you was secured by the car.
If you file for a Chapter 13 bankruptcy, you may have choices about what to do with secured collateral. You may be able to keep it and continue paying the payment, along with an arrears payment, or you may decide to return the property to the lender.
If you file for a Chapter 7 bankruptcy, your secured debt may be discharged, but the lender is also able to repossess the property that secured the debt when you don't make arrangements to repay the debt. In other words, if you have a mortgage on your home and file a Chapter 7 bankruptcy, the mortgage debt may be discharged but the lender can take back your home if you don't continue paying the mortgage.
What is Unsecured Debt?
Unsecured debt is debt that is not backed by any collateral. Credit card debt is unsecured debt. A credit card company gives you a credit card with a specific limit on it after you sign. The agreement between you and the credit card company basically expresses you will pay back any amount charged with interest. The loan is based on your agreement alone. If you do not pay the debt back, the lender has limited options and typically cannot repossess anything.
Bankruptcy courts further differentiate unsecured debt by dividing it into two different categories: priority unsecured debt and nonpriority unsecured debt.
- Priority unsecured debt is paid before nonpriority unsecured debt. Examples of priority unsecured debt include child support, alimony, certain personal injury claims, and wages owed to employees.
- Nonpriority unsecured debt includes credit cards, medical bills, and personal loans.
Dischargeable vs. Non-Dischargeable Debt in Chapter 7 Bankruptcies Filed in Indiana
Like Chapter 13 bankruptcies, both secured and unsecured debt can be discharged in Chapter 7 bankruptcies with some significant exceptions when it comes to unsecured debt.
The following debt can be discharged in a Chapter 7 bankruptcy:
- Medical bills
- Personal loans
- Credit card debt
Generally speaking, there are certain types of unsecured debt that cannot be discharged in a Chapter 7 bankruptcy, including:
- Student loans
- Debt incurred from fraud (for example, if you lied on an application and the debt was incurred from the lender's reliance on that lie)
- Money obtained in anticipation of the bankruptcy filing
Dischargeable vs. Non-Dischargeable Debt in Chapter 13 Bankruptcies in Indiana
Both secured and unsecured debt can be discharged in Chapter 13 bankruptcies, but there are also non-dischargeable unsecured debts that cannot be discharged in Indiana.
The following debt can be discharged in a Chapter 13 bankruptcy:
- Credit card debt
- Debt due to payment of nondischargeable taxes
- Medical bills not fully covered by insurance
- Debt due to your destruction of the property of another
- Unsecured personal loans
- Certain penalties and fines owed to the government
- Certain tax obligations
- Judgment debt (usually this is debt that you have because a judgment was placed against you for a negligence-related or personal injury matter or a breach of contract)
Generally speaking, there are certain types of unsecured debt that cannot be discharged in a Chapter 13 bankruptcy, including:
- Child support
- Criminal penalties
- DUI penalties
- Judgment debt (usually this debt is dischargeable but in some cases, the other party may object and produce qualifying reasons why the judgment debt should be excepted from dischargeable debt)
Contact a Bankruptcy Attorney in South Bend Today
Bankruptcy in Indiana is a way to get your finances back in order, and in doing so, it helps you get your life back on track. Through this process, it is integral to understand what debt can and cannot be discharged.
At James K. Tamke, PC, our bankruptcy lawyer will thoroughly answer your questions, review your financial situation, and guide you through the process. To learn more, contact us today at (574) 289-8788 or fill out our online contact form to schedule a free consultation.