This is a common question people ask themselves when financially broke. The answer is not straightforward and depends on which type of bankruptcy you filed and how much debt you had. Let’s take a closer look at which debts are paid by the creditors or discharged in bankruptcy. Also, we will see which debts are not removed and who pays for them.
Here Are the Various Types of Bankruptcies;
1. Liquidation
The court appoints a trustee in bankruptcy to liquidate the assets. The trustee then pays the creditors with the remaining cash. Sometimes, creditors may get some payments beyond what is needed to pay their debts, claiming they are not owed. When this happens, it is called “claims against equity.”
2. Family Farmers
Farmers who file for bankruptcy under bankruptcy law can keep a certain amount of property. Some wits charge this amount as “federal taxes .”This is because the compensation for an asset after bankruptcy is called federal taxes.
3. Large Reorganization
Large businesses often have large debts. Creditors and debtors work together to reorganize their debts. Dischargeable debts are written in a court agreement called the “Plan of Reorganization .”Also, the creditor or the debtor may negotiate a payment plan.
4. Municipalities
Creditors may declare bankruptcy due to bad management. In this type of bankruptcy, a portion of the property is distributed to the creditors, and the debt is repaid with a fixed sum over time. Such cases are entitled to “conversion” and are treated as a reorganization.
5. Individuals
In this type of bankruptcy, the individual’s possessions are distributed to creditors for repayment of debts. In contrast, assets are divided into two groups: investments with a high value and a low value. Assets with a high value must be sold by the trustee, who pays the creditors with the money obtained from selling these assets.
6. Repayment Plan
When a debtor gets back on its feet, it may file a repayment plan with the court. Creating a repayment plan allows debtors to repay creditors in installments. Creditors are not likely to be angry because they will receive their money back, and they can get more money than they usually get in bankruptcy proceedings.
Here Is What Happens When You File Bankruptcy Who Pays the Debt;
1. Tax Debts in Bankruptcy
The tax authority never wipes out your tax debts when you file for bankruptcy. If you can’t pay off your tax debts, you must arrange with the tax authority to pay a portion of the debt through a payment or installment plan. When you file bankruptcy, it doesn’t mean you owe less tax; you don’t have to repay them through taxes anymore. You will still be responsible for paying all your tax obligations even if the bankruptcy is successful.
2. Student Loans in Bankruptcy
If you have student loans in default, the lender is unlikely to forgive them. However, there are provisions to mitigate this situation and make it easier to clear up your debt. For example, you can opt for a discharge so that your student loans will not appear on your credit report when you file for bankruptcy, but this only works for certain federal loans. You need a personal hardship provision and a waiver for private student loans.
3. Credit Cards in Bankruptcy
Most of the time, creditors will not forgive debt in bankruptcy. However, there are situations where the basic rules do not apply. Suppose you have a specific type of debt, such as medical bills and credit card debt. In that case, you may be able to place a “PAYE” or “Pay as you Earn” order with your creditors so that your creditors will stop charging you interest payments on assets that are exempt from bankruptcy.
4. Auto Loans and Mortgage Debt in Bankruptcy
When you file for Chapter 7 bankruptcy, all of your secured debts are typically discharged. For example, if you have a car loan or you have taken out a home mortgage, there is a chance that both your car lender and your home mortgage lender will give up their claim to the collateral.
5. Property Taxes and Governmental Debts in Bankruptcy
Most of the time, property taxes and governmental debts are exempt from discharge in bankruptcy. This is because the debtor will pay the same creditor through taxes, fines, penalties, and assessments. These debts may be included in default if the debtor can prove to a judge that they are repaying other debts through taxes, fines, penalties, and assessment.
6. Unsecured Debt in Bankruptcy
When you file for bankruptcy, the creditor (whether a bank or a credit card company) must give you the information they hold on the debt. This means that if they have a copy of your account statement or they can prove to the court that you owe them money, that debt will not be dischargeable in bankruptcy.
Final Verdict
Filling for bankruptcy is not easy and also not cost-free. You should be aware of the legal requirements and be prepared to face the creditors and negotiate a repayment plan with them. But remember that some debts are not dischargeable in any bankruptcy case, and you will have to pay for them.