Now that the differences between secured and unsecured debt were clarified a bit in last week's post on the Mesa Bankruptcy Law Blog, the next question that Arizona residents may be thinking about is which debt is discharged through bankruptcy. Debtors turn to personal bankruptcy, either Chapter 7 or 13, not only to have most of their debts wiped out but also to avoid asset forfeiture. So it is natural to wonder if all debts or only some specific debts will be discharged through the process.
It is very important to note that not all debts are discharged in bankruptcy, regardless of what type of bankruptcy the debtor has filed-in fact they vary from chapter to chapter and it is very important to be clear about which chapter one intends to file under to determine which debts can be discharged, as those that are not discharged still need to be paid back to debtors after the bankruptcy.
Instead of focusing on what can be discharged, the law, under section 523(a) of the Bankruptcy Code outlines the debts that cannot be discharged. These include certain tax claims, debts for spousal or child support or alimony, debts for most government funded or guaranteed educational loans or benefit overpayments and debts for certain tax advantaged retirement plans, among other exceptions.
The relief that comes with filing for bankruptcy and having certain debts discharged can be overshadowed by the possibility of misunderstanding which debts can be cleared out and still having to owe them after debts are discharged. Arizona residents considering filing for bankruptcy may want to approach an experienced bankruptcy attorney for some clarity on the matter.