Bankruptcy Guide: What Debt Can You Discharge?

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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What can you file bankruptcy on?

It’s a simple question, but the answer is not so simple. Before we discuss which types of debt can typically be discharged in bankruptcy, we must examine which type of bankruptcy you plan to file.

As a consumer, you’d most likely file Chapter 7 or Chapter 13 bankruptcy. Let’s take a look at the differences between the two types so you have a better understanding of what kind of debt can be discharged through bankruptcy and what types can’t.

Chapter 7 vs. Chapter 13 bankruptcy: Here’s the difference

Although both types of bankruptcy will help release you from debt, they do so in different ways.

In Chapter 7 bankruptcy, your nonexempt assets are liquidated, and the funds are distributed among creditors to satisfy some of your debt. Assets exempt from liquidation include items considered necessary for your everyday life, such as vehicles or tools you use for your job, up to a certain value.

Any remaining qualifying debt is fully discharged. Creditors, furthermore, will have to stop calling you to collect.

Only low-income earners typically qualify for Chapter 7 bankruptcy. If your income exceeds the state median income, you’ll have trouble qualifying. You’re also not eligible if you’ve declared Chapter 7 bankruptcy in the past eight years.

Chapter 13 bankruptcy restructures your debt but doesn’t discharge it right away. With this approach, you enter a new repayment plan on your debt for a period. If you still owe money at the end of this period, your debt might be wiped out.

Note that either type of bankruptcy could remain on your credit report for up to 10 years.

What can you file bankruptcy on?

There are several kinds of debt in which bankruptcy can be filed, though some might be treated differently under Chapter 7 versus Chapter 13. Some types of debt that are typically eligible for both include:

  • Mortgages
  • Auto loans
  • Personal loans
  • Credit card debt
  • Medical bills
  • Unpaid rent
  • Unpaid utility bills

Although these types of debt can be erased, you might lose your assets if you have secured debt, which requires you to offer collateral, such as a car or house.

“Almost all unsecured debt is dischargeable,” explained attorney Arnold Hernandez. “Secured debt is dischargeable, but there is almost always a lien on the property, so even if the debt is discharged, the property can be recovered by the creditor.”

Under Chapter 7 bankruptcy, creditors could seize both your home and car. Under Chapter 13, you have a greater chance of holding on to these assets if you can keep up with your new repayment plan.

Another key difference involves unsecured personal loans in which there’s a cosigner who agreed to help repay if you can’t.

Under Chapter 13 bankruptcy, creditors can’t call your cosigner during your bankruptcy period. Under Chapter 7, creditors can continue to contact your cosigner for payment.

According to consumer protection attorney Don Petersen, two types of debt are more commonly discharged under Chapter 13 than under Chapter 7.

“The most common example of debts [that] are dischargeable in Chapter 13 but not Chapter 7 arise from marital property settlements and certain federal income taxes,” said Petersen.

What debt can’t be discharged in bankruptcy?

Although you can file for bankruptcy on most unsecured loans, as well as on mortgages and car loans, you usually won’t find much luck with other types of debt.

“Most debt owed to the government is not dischargeable,” said Hernandez. “HOA [homeowners association] dues are not dischargeable, taxes are not dischargeable, [and] student debt is not dischargeable.”

Or at least that’s usually the case. Bankruptcy is a complex process, and few types of debt have hard and fast rules. For instance, there are certain instances when HOA dues, taxes, and even student loans can be discharged, though they typically don’t qualify.

Here are a few types of debt where discharge through bankruptcy is difficult, if not impossible:

  • Student loans
  • Money owed with certain kinds of taxes
  • Child support or alimony payments
  • Fines you owe for breaking the law

Discharging student loans in bankruptcy is not impossible, but it’s rare. Under current law, you’ll need to pass the “Brunner test” by showing that your student debt makes it impossible to maintain a minimum standard of living and that your finances aren’t going to change soon. You also have to show you’ve made a good faith effort to keep up with your student loan bills.

In fact, Petersen said, “Some debts are dischargeable in Chapter 7 as well as Chapter 13, but only if the debtor files an adversary proceeding,” which is a sort of lawsuit within a lawsuit, challenging whether a certain liability can be discharged.

In many student loan cases, switching to an income-driven repayment plan or applying for deferment or forbearance is a better option. Filing for bankruptcy can be a long and expensive process with no guarantee of success. Plus, it damages your credit for years to come.

Consult a bankruptcy lawyer for more information

You now have a general answer to the question “What can you file bankruptcy on?” But it’s still a good idea to check with an attorney for information on your specific situation.

“Debtors who believe they may owe debts which may or may not be dischargeable should consult with an experienced bankruptcy attorney who routinely practices in the court where their case would be filed,” advised Petersen. He said you should avoid representing yourself in court.

If you can’t afford a lawyer, you might be able to find free help through a local legal clinic or society. With their expertise, you can determine the best course of action for your finances.

You can find options for restructuring and paying off debt, even if bankruptcy doesn’t turn out to be one of them.

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LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.199% APR to 15.365% APR (with AutoPay). Variable rates from 6.145% APR to 14.685% APR (with AutoPay). SoFi rate ranges are current as of June 15, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.145% APR assumes current 1-month LIBOR rate of 1.97% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply:SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
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5.99% – 18.99%2$5,000 - $50,000Visit Citizens
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.