What Debt Can Be Wiped Out In Bankruptcy?
What Bankruptcy Can and Can't Do For You

What Debt Can Be Wiped Out In Bankruptcy?

Bankruptcy can eliminate some kinds of debts, like credit card debt and medical debt, but not others, like child support and (in most cases) student loans. And liens associated with "purchase money secured debts", where you have pledged collateral for a loan, also are not affected by a bankruptcy, so you can still lose the collateral to the lien-holder.
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Updated: 2021-11-23
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Not all debts can be discharged in bankruptcy. Some debts will survive bankruptcy—they remain valid and collectible, just as they were before you filed for bankruptcy.

It's important for you to know which debts will be wiped out and which ones will not. 

When you get a bankruptcy discharge, it won't spell out exactly what debts are discharged. Instead you'll receive a form from the bankruptcy court saying your debts are discharged. 

Debts That Will Be Wiped Out in Bankruptcy

Credit Card Debts

The vast majority of people who file for bankruptcy are truing to get rid of credit card debts. Most bankruptcies succeed in this mission. The few exceptions are for case involving fraud or luxury purchases just before your bankruptcy.

Medical Bills

Many folks who file for bankruptcy do so as a result of medical bills. Many people have inadequate insurance, or can't afford the deductibles in the plans that are available to them. Bankruptcy can eliminate these debts. (Note: Obamacare and medicaid expansion have greatly reduced these kind of bankruptcy, especially in states that have expanded Medicaid eligibility.)

Lawsuit Money Judgements

If a creditor sues you to collect a debt and wins, the court will issue a judgement ordering you to pay the debt. If you don't pay it voluntarily, the judgment holder is entitled to collect it from you by, for example, getting funds from your bank account, garnishing your wages, or placing a lien on your home. 

In the vast majority of cases, money judgements are discharged in bankruptcy. And even judgement liens attached to your home can be eliminated if you if they interfere an exemption on your home

Debts Arising From Car Accidents

Car accidents can lead to injuries to persons and property. Sometimes the person responsible is uninsured, or has inadequate coverage to cover all actual damages. 

If the accident was the result of the drivers mere "negligence" — rather than some "willful or malicious" act —  the debt arising from the accident is dischargeable in bankruptcy. But if the debt was the result of drunk driving, the debt will survive bankruptcy. A reckless driving charge may or may not meet the willful and malicious standard.

Obligations Under Leases and Contracts

Bankruptcy allows you to break leases or contracts and walk away from the personal liability (that is, you can’t be sued for damages) — unless the trustee thinks the lease or contract could provide money to pay your unsecured creditors, or the courts find that you filed for bankruptcy simply to get out of a personal services contract.

Personal Loans, Payday Loans,  and Promissory Notes

Money you owe from a promissory note or a handshake deal are almost always dischargeable in bankruptcy. 

For a more detailed discussion of these points see Chapter 9 of How to File For Chapter 7 Bankruptcy, by Albin Renauer & Cara Oneil (22nd ed. 2021)


Legal Consumer - Law. Jurisdictional relevance: The content of this article pertains to all US states and counties.

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