How Debts Are Discharged In Bankruptcy
Most people know that bankruptcy is a process that eventually cancels monies owed to creditors. In legal terms, the canceling of a debt is referred to as a discharge of that debt. There is always some confusion about which debts can and cannot be discharged. As a rough guide, consumer debts that have not been secured can be discharged while non-consumer debts often cannot. There are exceptions to this, and that’s where a bankruptcy attorney is best placed to advise.
How then are debts discharged? There are some misconceptions over this process. I know several people who claim that bankruptcy costs taxpayers billions every year. Why? They are under the impression the bankruptcy court pays the debts on behalf of the debtor, and that money of course would come out of taxpayer’s funds. I am sure creditors would appreciate that. Unfortunately, for creditors, that is not the case. In fact, creditors watch as the debt is cancelled, wiped from their books – creditors take the loss. This is one reason why credit becomes harder during tough economic times, they don’t want to be handing out credit if people cannot make the repayments.
When a debtor files for bankruptcy, the court follows a process which, at the conclusion, discharges any eligible debts. This is in the form of a court order that pronounces the debts discharged, and which then effectively bans creditors from contacting debtors in order to collect those debts. Creditors are free to contact the various credit reporting agencies to list your debt as discharged in bankruptcy, and that will stay on your history for up to ten years.
In many cases, debtors are able to start life again completely debt free since their debts have all been consumer related, particularly credit card related. Others are able to start all over again, however, they may still have their home (and its mortgage) and car (and its repayments). Every debtor is different and every debtor will have a different outcome.
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