What Can Be Included in Bankruptcy?

If you are contemplating seeking bankruptcy protection, you may wonder what you can include in your case. Although the answer may vary, depending on what type of bankruptcy you pursue, some general rules apply to most types of consumer bankruptcy, according to the book “How to File for Chapter 7 Bankruptcy.”

Bankruptcy Types

Most consumers pursue either Chapter 7 or Chapter 13 bankruptcy, according to “How to File for Chapter 7 Bankruptcy.” Chapter 7 petitioners are requesting forgiveness of their debts, but will likely lose such assets as a house or a savings account as a result. If you pursues Chapter 13, you will usually repay part of your debts over three to five years in a court-supervised repayment plan. This may allow you to preserve such reasonable assets as a primary residence and a savings account.

Credit Card Debt

Credit card debts can almost always be included in a bankruptcy case, according to “How to File for Chapter 7 Bankruptcy.” However, if you run up your credit cards right before pursuing bankruptcy or lied on a credit card application, the credit card issuer can object to your request. In a Chapter 13 case, you may be required to repay part of your credit card debt. This depends upon how much you owe in more “priority” claims such as government-issued student loans.

Medical and Utility Bills

Medical and utility bills can be included in personal bankruptcy, according to “How to File for Chapter 7 Bankruptcy.” These debts will be completely and permanently forgiven in a Chapter 7 case and partially reduced in a Chapter 13 proceeding.

Back Taxes

If you owe federal, state or local taxes from more than three years ago, you can include these in your case, according to “How to File for Chapter 7 Bankruptcy.” Chapter 7 filers typically won’t pay anything toward such debts, but a Chapter 13 case may require a portion of back tax debt be repaid. If your tax bills are less than three years old, they must be paid in full no matter what type of bankruptcy protection you pursue.

Installment Loans

Installment loans, including private student loans, can usually be included in your petition, according to “How to File for Chapter 7 Bankruptcy.” If you're filing under Chapter 7, such debts will typically be permanently forgiven. In a Chapter 13 case, you may or may not be required to repay part or all of these obligations depending upon the nature of your court-supervised debt repayment plan.

However, a few exceptions apply. If your loan is “secured” with a car or other collateral, then the creditor may be able to legally seize that property after the judge has finalized your Chapter 7 case. In a Chapter 13 filing, you and the bankruptcy judge and your creditors may be able to work out a plan in which you can restructure your secured installment loans and keep the vehicle or other property.

However, this will not apply to federally-issued student loans. No matter what type of bankruptcy you file these normally cannot be included in your case. Exceptions are rare and include cases of provable permanent disability or closure of the educational institution for which you took out such a loan to attend.

References

• "How to File for Chapter 7 Bankruptcy"; Stephen Elias, Albin Renauer and Robin Leonard; 2009

Resources

• U.S. Courts: United States Bankruptcy Courts