When a debt is wiped out in a bankruptcy, it is called being discharged. Not all debts are allowed to be discharged according to the government, which is why your bankruptcy attorney in NYC will ask you detailed questions about your debt when you arrive for your initial interview. Before you begin interviewing attorneys, you may wish to know which types of debts can commonly be discharged via bankruptcy in NYC.
Unsecured Credit Card Debt
Bankruptcy is the unmatched king at wiping out credit card debt. The only type of credit card debt that is usually not allowed to be discharged is a secured card, such as a credit card that is backed by a lien on your car or home. Credit card debt is generally unsecured debt – meaning the company has no way to come after your physical assets if you don’t pay your bill. This is the type of debt that can be discharged in a Chapter 7 bankruptcy.
Certain Tax Debt
While the government doesn’t like to give up any money they are owed, there are some types of tax debt that can be discharged in a bankruptcy. If you filed your income taxes on time for the last three years, you can sometimes get the income tax debt from three years ago discharged. You cannot do this if you haven’t filed the taxes for that year, or if you didn’t file on time. The discharge will not take care of the fees or penalties associated with the late taxes, only the bill itself.
Upside Down Loans
If you have bought a house or a car, you’ve probably heard the term “upside down loan” before. This means that an asset is currently worth less than what you owe on it. For example, if you purchased your car from a high-interest “No Credit, No Money Down” business, it’s likely you’ve been paying on nothing but the interest for quite a while. Your car may only be worth $5,000 now that you’ve had it for several years, and you could still owe $7,700 because you haven’t actually paid on the cost of the car.
In a Chapter 13 bankruptcy, the bankruptcy trustee would reduce the loan balance to the worth of the asset, so that you can have fewer payments and a shorter loan. However, Chapter 7 bankruptcies require that the asset was purchased at least one year ago (and at least 30 months ago for automobiles).
Debt Collecting Activity Will Also Be Eliminated
These are the three types of debt that are generally discharged within a bankruptcy. However, getting rid of debt isn’t the only benefit that comes with filing bankruptcy. One major plus for most people is the fact that all collections activity stops when a bankruptcy is filed. The automatic stay means that once creditors find out you are in bankruptcy, they can no longer hassle you for payments. Imagine not being anxious every time your phone rings from now on, or looking at the mail without getting depressed.
Unsecured credit card debt, tax debt, and upside down loans are the three most common types of debts that we deal with, but even if your debt doesn’t fall into those categories, consider contacting us anyway. We will be able to help you learn if your debt can be discharged.
If you are interested in learning more about how filing bankruptcy can help you get a clean start, contact my office today. We specialize in bankruptcy law in NYC, and are experienced in helping you protect your assets and your sanity during this complex process. My office can be reached at 212-244-2882.