Whether you can discharge (bankrupt) specific debts and keep others is a question that over the years I get asked repeatedly.
Actually, strangely enough, clients don’t ask it as a question. They state it as if it were completely possible.
“I want to get rid of my large debts and keep the small ones”.
After over 30 years of listening to this, I believe a lot of it stems from some very basic confusion of bankruptcy discharges and the general requirements and obligations of being a debtor in bankruptcy.
You Must List All Assets and Debts in Bankruptcy
First: There are numerous requirements to filing a bankruptcy case. One of them is that you must LIST ALL of your debts and ALL of your assets in your bankruptcy schedules.
Not All Debts Are Dischargeable in Bankruptcy
Second: When you receive a discharge, you are discharged from any and all debts that are made dischargeable by the Bankruptcy Code (unless a creditor or other party successfully objects to the discharge).
You Can Repay Any Debt You Want After Bankruptcy
Third: You can voluntarily repay any debt you want after the bankruptcy case is completed (in a in a Chapter 7 case this is about 4 months after the case is filed; in a Chapter 13 case it’s 36-60+ months).
See more on how the process works for each bankruptcy chapter.
Reaffirming Debts in Bankruptcy
Fourth: In a Chapter 7 case, you may, with the consent of the creditor and approval by the bankruptcy court, enter into a reaffirmation agreement. What this does is take the debt out of the bankruptcy and obligate you to the terms of the agreement (whatever they may be) despite the discharge you ultimately receive in the bankruptcy case. Reaffirmation agreements must be signed, executed, and filed with the court prior to the entry of discharge in your case.
The critical question to ask when trying to determine (or ask your attorney) whether you can discharge certain debts is: WHY do you want to do that (whatever “that” is)?
In my experience, most debtors perceive that if they keep certain creditors off the bankruptcy, that they will magically be able to continue to have credit with them.
Nothing could be further from the truth. In fact, with respect to credit card debt in particular, you have a much better chance of negotiating for a reaffirmation agreement with them (if that is your goal) to keep some credit on the card after your discharge is granted. Personally, I advise my clients strongly against doing that (because getting a new credit card after bankruptcy is about as difficult as finding mud after a rainstorm).
There is much more to say on this topic, such as how secured debts are handled in bankruptcy. If you have questions, you should schedule a consult with a bankruptcy attorney.
Image Courtesy of Caitlyn_and_Kara
