Dischargeable Debts - Debts You Can Discharge in Business Bankruptcy
Graphical representation of a bankrupt businessman. Image source: simplybusiness.co.uk

If you’re the owner of a business that is on its path of getting bankrupt, it is a good idea to file for bankruptcy and get the charges discharged.

For majority of people the main goal of filing under Chapter 7 of the Bankruptcy Code is to discharge their debts. Once your company starts hopelessly falling behind in paying the bills, it is important to find out the kind of debts that can and cannot be discharged. Even though some debts are Non-Dischargeable, however, most people filing for Chapter 7 will be able to discharge most or all of their debts.

What is a discharge and how does it function?

A debt discharge essentially releases the personal liability from individual debtors and prevents the respective creditors from taking any actions against the debtor. Thus, after a debt is discharged, a debtor is no longer liable to pay it and cannot be contacted by the creditors through any means of communication including calls and letters. However, in case of a valid lien existing without having been made unenforceable, secured creditor can use it to recover the property secured by this lien.

Dischargeable and Non-Dischargeable Debts:

The kinds of debts that will be discharged in the case of a bankruptcy would generally vary from chapter to chapter of the Bankruptcy code. This would also differ on a case to case basis. The Bankruptcy Code lists 19 categories of debts that cannot be discharged. Therefore, everything that does not fall within these categories is Dischargeable.

We have given below, a general overview of Bankruptcy Chapters:

  • Under Chapter 11 bankruptcy, a business can try and get reorganized in the hope of being profitable. This involves a plan for reorganization wherein the creditors can vote. In case the plan gets approved then the businesses are asked to repay their debts accordingly and the debts that do not get addressed will be discharged.
  • Under Chapter 13 bankruptcy, a sole proprietor or an individual debtor tries to repay the entire debt in the span of 3-5 years, as monthly installments. This would mean that the individual debtor has sufficient income to pay off all the priority and secured debt completely and a portion of the unsecured debt as well. Debts like court fees can be discharged under this chapter.
  • Under Chapter 7 bankruptcy, individual debtors can’t afford to repay creditors over 3-5-year period and their incomes also need to qualify under the “means test”. Some common types of debts which can be discharged by Chapter 7 bankruptcy include utility bills, bad checks, money owed on a lease, credit card debt, court judgments, other older unpaid taxes and penalties. On the other hand, debts that cannot be discharged include debts to governmental agencies, federal tax, liens and all those normally Dischargeable debts that a creditor successfully challenges the discharge.

It is also advisable to contact an experienced bankruptcy lawyer to get exact information on what type of bankruptcy might be the best for you and your business. This is because there is a variety of debts that could get formed depending on the way your business functions.

Originally posted 2017-08-08 22:59:06.


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