Whether a debt is “dischargeable” depends on the chapter the bankruptcy is under in Louisiana. A person may discharge credit card debt almost immediately with a Chapter 7 bankruptcy. Chapter 13 bankruptcy will reorganize all debts, including credit card debt, but ensures that people repay at least a portion of the debt. The courts usually discharge the remaining debt after a person pays the required amount.
Chapter 7 bankruptcy allows people to discharge debts other than credit card debt. People may discharge promissory notes, medical debt and personal loans through Chapter 7 bankruptcy. Sometimes dischargeable debts can only go through Chapter 13 bankruptcy. People must at least partially repay court fees, non-dischargeable tax debt, co-op or HOA fees, and retirement loans.
There are three categories of debts that bankruptcy can’t discharge. Non-dischargeable debts include child support, alimony, various taxes and government agency fines or penalties from drunk driving or injuries. Creditors successfully object to various debts, including purchases within 90 days of filing bankruptcy, debts left off of a pension, breach of fiduciary duty, embezzlement and larceny. A student loan is often a non-dischargeable debt because a discharge requires a separate legal process. People need to demonstrate undue hardship to argue for discharging a student loan. Proving undue hardship requires various tests through the courts.
How does bankruptcy affect a credit score?
The impact bankruptcy has on a credit score makes it a last resort. A person could lose 100 to 200 points depending on their credit score. Filing a Chapter 7 stays on a credit report for ten years, and filing a Chapter 13 stays for seven years. The score can recover before those years, but the data stays on the credit report for lenders to see.
Bankruptcy isn’t just a way of ignoring debt and hurting creditors because of its personal and financial impact on a person. Exploring alternatives to a bankruptcy starts with evaluating monthly budgets. A person can examine spending and see where to cut back. A second part-time job can help increase income. The monthly income should be enough to make ends meet.