If you’re hoping that bankruptcy is a quick way to have your debts discharged without having to pay another cent or lift a finger, you can be disappointed if you don’t know the facts.

Which bankruptcy eliminates all debt?

Which bankruptcy eliminates all debt? Well Chapter 7 bankruptcy, the most common type of consumer bankruptcy, is also called a ‘liquidation’ bankruptcy. The definition of ‘liquidation’ is “to convert assets into cash or cash equivalents” (Source: https://www.investopedia.com/terms/l/liquidate.asp). In a Chapter 7 Bankruptcy your assets (your stuff) can be used to pay back your debts.

However, that being said, many assets can be protected by law and some debt will be eliminated, or discharged. In a Chapter 13 bankruptcy, which is the second most common type of bankruptcy, the debtor (the person filing the case) must be earning an income throughout their bankruptcy. This income is usually in the form of a paycheck but other sources of income, such as social security income can be used to pay the bankruptcy payments. Over a period of three to five years, the debtor makes payments to the trustee assigned to their case, and these payments are used to pay back their creditors. So their debt is not ‘eliminated’ in the sense that it disappears in one fell swoop, but it is eliminated over time as they make payments toward those creditors.


Which bankruptcy eliminates all debt? Essentially, the answer to this question isn’t very simple or straightforward, and it probably could be most accurately met with the response, “It depends on your situation.” It’s true that part of the general purpose of bankruptcy is to eliminate some debt so that debtors are able to start over financially, but in addition to the debtor, the law also protects the creditors and helps them benefit in some way from the process. So the answer is somewhere in the middle; bankruptcy will allow debtors to obtain a fresh financial start, but it won’t necessarily eliminate all of their debt. Debts such as unpaid income tax or student loans don’t go away, regardless of which chapter of bankruptcy is filed.  

Working with an experienced bankruptcy lawyer is the best way to insure you get the most out of your bankruptcy and the discharge the will go with it.

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