What Happens to Debt After Filing for Bankruptcy?

What Happens to Debt After Filing for Bankruptcy?
  • Opening Intro -

    One thing that can be tough is living under the crushing weight of a lot of debt.

    If your debt seems impossible to pay back, one solution you may have considered is filing for bankruptcy.


However, it may not be as easy as you had first assumed. A lot of what happens to your debt after bankruptcy depends on your specific circumstances and the specific debt you owe.

Chapter 7 Versus Chapter 13

Something that will definitely determine what happens to your debt after filing for bankruptcy is whether the bankruptcy court forces you to use Chapter 13 bankruptcy or allows you to use Chapter 7 bankruptcy.

Chapter 7 is the kind of bankruptcy most people are accustomed to. It involves the dissolution of unsecured debt as well as the liquidation of certain assets held by the debtor.

Meanwhile, Chapter 13 is completely different. The debt in question will not be dissolved. Instead, it is reorganized into a new payment plan the court believes will be easier for the debtor to pay off over a period of years.

Which Chapter Will You Get?

Most people who file for bankruptcy probably want to go through a Chapter 7 process since it absolves them of their responsibility to pay back that unsecured debt. However, being allowed to use the Chapter 7 process is not as easy as one would hope.

You should probably hire a good bankruptcy attorney to do so. Part of the process of determining what Chapter of bankruptcy you can file under is undergoing an examination of your income to see whether you make more or less than the median income for your area.

You may also be forced to undergo credit counseling services before filing for bankruptcy. Hiring a bankruptcy attorney will make navigating these various processes much easier.

Secured Debt Versus Unsecured Debt

Another factor that can determine what happens to your debt after bankruptcy is the kind of debt you have. Debt can be divided into secured debt, such as mortgages, car loans, or home loans, and unsecured debt, such as medical bills, utility bills, or credit cards.

What you should be aware of is that typically only unsecured debt can be completely dissolved through the bankruptcy process with no additional cost to the debtor. This is not the case for debt that is secured through the use of collateral.

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That collateral, whether it be a home, car or something else, will end up being obtained by the court and given over to the creditor in question.

While most people may want a simple dissolution of their debt during a bankruptcy process, this doesn’t always happen. What happens to your debt is determined by what form of bankruptcy you are approved for as well as the kind of debt you hold.

Overall, bankruptcy may not work as you had first assumed, so it’s smart to do some research beforehand.

Image Credit: what happens to debt after filling for bankruptcy by envato.com

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