When considering a bankruptcy, you will often hear your attorney refer to "dischargeable" debts. It's important to fully understand what the term means, because discharging your debt is the primary purpose of filing a bankruptcy.
A debt is dischargeable when bankruptcy can essentially eliminate it, or make it go away. The most common types of dischargeable debt are credit cards, medical bills, unsecured loans, and personal loans. Federal Income Taxes are sometimes dischargeable (if they were filed on time and are more than three years old), but in most cases taxes are not dischargeable. Student loans and government fines are rarely dischargeable.
When are your debts discharged? Debts are discharged when all the steps of your bankruptcy are completed. In a Chapter 7 bankruptcy, this happens relatively quickly, within 3 or 4 months of filing. A Chapter 13 bankruptcy takes much longer... the plan itself will be 3 to 5 years long, and the official discharge will take months longer.
The good news is, as long as you are complying with your bankruptcy requirements, the automatic stay prevents creditors from attempting to collect on your debts. So, in the time between filing and discharge, you will be protected from your creditors.
Why are some debts dischargeable, while others are not? The policy of Congress, as manifested through the United States Code, largely determines what is discharged and what isn't. Congress has determined credit cards can be discharged... usually. If you used your credit cards to pay taxes or make a large purchase right before filing bankruptcy, they are NOT discharged.
Congress has taken the policy stand that student loans, whether Federal or private, are NOT dischargeable, except under the most extreme circumstances. It can be argued that a student loan is a debt not much different than a credit card. They both can be used to purchase services or goods. Both can prevent a debtor from enjoying the "fresh start" promised through bankruptcy. But, at least for now, Congress has taken the policy stance that student loan debts will survive through bankruptcy, to the point where your wages (or even Social Security benefits!) can be garnished.
Taxes and student loans involve money originating from or directed to the Federal government. So, maybe it should be no surprise that Federal bankruptcy law demands that they be repaid in full. For debtors facing financial hardship, relief is often denied. Unfortunately, the bankruptcy "fresh start" is not a reality for may debtors.
Contact us to meet with an experienced Pittsburgh bankruptcy attorney who can discuss which of your debts can be discharged, and what to do about those that cannot.