Terms involved with the bankruptcy proceeding may be a bit confusing for everyone and those such as dischargeable and non-dischargeable debt may add more ambiguity to your understanding unless you are an expert. But, understanding these terms help you sail through the bankruptcy process with ease. The more awareness you have, the better decisions you are able to make. It is important you know the difference between the two. In this detailed article here, we will explain what dischargeable and non-dischargeable debts are. Let’s have a look!

What is Dischargeable Debt?

A dischargeable debt is the one that you are no longer responsible to pay after filing for bankruptcy. This refers to all the borrowings which can be eliminated by the bankruptcy discharge order. As part of your discharge, you get immense relief and hence creditors cannot force you to pay. Some of the examples that can be classified as dischargeable debts:

• Payments on motor vehicles
• Past-due utility bills
• Credit card debts
• Personal loans and more

What Is Non-Dischargeable Debt? 

Not all debts are covered once you get a bankruptcy discharge, and may still need to be repaid. All those debts are called non dischargeable debts. These debts cannot be eliminated through a bankruptcy proceeding and you might have to pay the creditor as per the agreed payment arrangement.
The following are some examples of non-dischargeable debts however this may not be the final list because the cases are individually assessed and are specific to your fact situation:

• Cash advances over $750 made within 70 days of filing the bankruptcy (filing date); 
• Debts taken because of death, injury or crime committed while the debtor was intoxicated;
• Student loans;
• Debts taken to pay taxes to federal, state, and local authorities; 
• Debts taken to pay fines & penalties;
• Child support payment or spousal support (including alimony);
• Pension or profit sharing debts.

What will happen to your debts once you file for bankruptcy?

This is another very important question that comes to everyone’s mind so let’s get the answer here. Basically bankruptcy gives you a new beginning by wiping out and arranging the debts that exist before you file for it. Once you receive your discharge, your dischargeable debt: such as your credit card bills, your personal loans, and the medical bills usually go away. But you are still left with the “non-dischargeable” debts, as well as any new debt you incur after the filing of bankruptcy. It doesn’t eliminate bills you accumulate forward from the filing date (in most cases – your bankruptcy attorney would explain that to you). Any other bills that add up while waiting for the discharge (also known as bankruptcy approval) are also to be paid by you.

Note – How much you will have to repay your creditors depends largely on the type of bankruptcy you are filing for, i.e. Chapter 7 or Chapter 13. The implications of both are slightly different and a good attorney would be able to help you understand that based on your finances, but you must gain the knowledge at your level.

Dischargeable Debts under Chapter 7 Bankruptcy

Chapter 7 bankruptcies are filed by a consumer when there is nothing left to sell to repay the creditors and therefore you get an exception as part of the bankruptcy discharge. All the dischargeable debts are eliminated. Further, if there is anything that can be liquidated, then the unsecured loans/debts including debts on credit cards are the last one to get paid after all priority debts such as alimony, child care support, and mandatory government and state taxes.
Important – Bankruptcy discharge received doesn’t not apply to debts related to your property (such as a mortgage repayments or car debt), and hence if you discontinue these, the lender has the right to still foreclose or repossess the property. 

Dischargeable Debts under Chapter 13 Bankruptcy

As far as chapter 13 bankruptcy is concerned, dischargeable debts are often considered non-priority and you might get some breathing space if you don’t have anything left. Borrowers usually get nothing or significantly less through this type of bankruptcy. But, if a dischargeable debt happens to be a secured debt (such as car loan), then you are often left with two choices. First, if you wish to keep your car, you will have to keep making payments during the Chapter 13 bankruptcy procedure or alternatively, you may let go of the car, and discharge the liability for the car loan.