Bankruptcy is a legal means to help consumers in Michigan relieve debt and stop calls from debt collectors. Many consumers choose Chapter 7 or Chapter 13 to discharge debt, but not all debt in bankruptcy can get discharged.
Dischargeable debts in Chapter 7 and Chapter 13
A dischargeable debt is a debt that has no collateral attached, such as medical debt or credit card bills. In Chapter 7 bankruptcy, the dischargeable debts get paid through liquidation or selling nonexempt property, such as secondary homes and secondary vehicles.
The proceeds from the sales pay the debt, and the remainder of the debts get discharged in four to six months. After the debtor gets a discharge, they no longer owe the debt and can’t be held responsible for it.
Chapter 13 allows the debtor to devise a debt repayment plan to submit to the court for approval. If the court approves the plan, the debtor has three to five years to complete it without losing property. However, the debtor must have enough disposable income to qualify for Chapter 13 and maintain payments on mortgages.
Bankruptcy includes many categories of non-dischargeable debt. Some of these categories include domestic payments, certain taxes, current utilities, and debt from criminal penalties. Student loans usually do not get discharged in bankruptcy unless the debtor can prove that paying it would cause them undue hardship.
There are cases where the court or creditor may deny a dischargeable debt, such as in cases involving fraud or not following laws. If the creditor requests denial of dischargeable debt, the court holds a hearing to let both sides present arguments.
Even if consumers can’t get all their debts discharged, they still will have less debt in the end. It may be possible to work out a payment plan with the creditor to further reduce the amount owed or give the debtor more time to pay it back.