Understanding Chapter 7 Bankruptcy: What Debts Can You Eliminate?

Chapter 7 bankruptcy is a powerful tool designed to help individuals regain control of their finances. Many people harbor misconceptions about what filing for bankruptcy entails, particularly the fear of losing everything they own. However, Chapter 7 primarily focuses on eliminating unsecured debts, allowing individuals to make a fresh start without sacrificing their essential assets. In this blog post, we will explore the types of debt that can be discharged through Chapter 7 bankruptcy and why this option may be ideal for those struggling with financial burdens.

What Is Unsecured Debt?

Unsecured debt refers to any debt not backed by collateral, meaning creditors cannot claim specific property if the borrower defaults. If you fall behind on unsecured debts, creditors typically turn to collections agencies instead of seizing property. This is different from secured debts, like mortgages and auto loans, where the lender can repossess the property if payments are missed. Understanding the distinction between these two types of debt is crucial when considering Chapter 7 bankruptcy.

Common Types Of Debt Discharged In Chapter 7 Bankruptcy

Chapter 7 bankruptcy is particularly effective in eliminating various forms of unsecured debt. Here are some of the most common types of debt that can be discharged:

• Credit Card Debt: Approximately 74% of Chapter 7 bankruptcies involve credit card debt, making it one of the most frequently eliminated debts.
• Medical Bills: About 52% of filings include medical debt, which can quickly accumulate and become unmanageable.
• Personal Loans: Roughly 34% of Chapter 7 cases involve personal loans, which often carry high-interest rates.
• Past Due Utility Bills: Around 27% of individuals filing for Chapter 7 report past due utility bills, allowing them to eliminate these ongoing financial pressures.
• Debts in Collections: This includes civil judgments, payday loans, past due rent, and overdrawn bank accounts, which collectively account for 5 to 20% of Chapter 7 bankruptcies.

Understanding Debt Collectors & Chapter 7

If you are dealing with aggressive debt collectors, it’s essential to know that Chapter 7 bankruptcy does not offer special protections for them. When you file for Chapter 7, you can eliminate debts in collections and put an end to the harassment from debt collectors.

Repossession Deficiencies: A Common Oversight

Another type of unsecured debt frequently discharged in Chapter 7 is repossession deficiencies. This occurs when a vehicle is repossessed, and the lender sends a bill for the remaining balance after selling the car at auction. This can be a devastating financial burden on top of losing the vehicle itself. If you’re facing a repossession deficiency, know that Chapter 7 bankruptcy can help you eliminate this debt as well.

Is Chapter 7 Bankruptcy Right For You?

If you find yourself overwhelmed by unsecured debt and see no way out, Chapter 7 bankruptcy may be a viable option. It allows you to discharge debts and start fresh, free from the burden of financial stress. If you reside in Central Texas and are considering this route, we encourage you to reach out to Austin Bankruptcy Lawyers for a free consultation. We can help you explore your options and determine if Chapter 7 bankruptcy is the right choice for your situation.

Summary

Chapter 7 bankruptcy offers a significant opportunity for individuals struggling with unsecured debt to regain their financial footing. By understanding the types of debt that can be discharged and the protections afforded to you, you can make informed decisions about your financial future. If you are ready to take the next step towards financial freedom, contact Austin Bankruptcy Lawyers today.