Chapter 7 Bankruptcy:

What Kind of Debts—and How Much—Get Discharged?

 

People file for bankruptcy for one reason—to wipe out unwanted debt and get a fresh start. But bankruptcy also hurts credit scores and may make it hard to borrow money in the future. To help you weigh the costs and benefits, we asked our readers about the kinds of debts they were able to have wiped out, or “discharged,” in their Chapter 7 bankruptcy cases—the kind of bankruptcy that gets rid of debt most quickly. (For more information, see our article on the basics of Chapter 7 bankruptcy.)

Before we get to their answers, it helps to know what kinds of debts generally qualify for a discharge in a Chapter 7 bankruptcy. Debts that are “unsecured” (meaning you haven’t promised to give back property like a house or car if you don’t make the payments) are usually dischargeable, if they aren’t covered by special rules like those for child or spousal support, unpaid taxes, and student loans. (For more on these types of debts, see our article on debts that are hard to wipe out in bankruptcy.)

Unsecured debts that typically qualify to be wiped out are credit card, medical, utility, and phone bills, as well as past-due rent and some business debts and court judgments.

The bottom-line good news: Readers told us that the vast majority (97%) of these debts were wiped out.

Credit Card Bills: The Most Common Debt Wiped Out in Bankruptcy

Our survey results show that unpaid credit card bills were by far the most common kind of debt that our readers owed when they filed for Chapter 7 bankruptcy. And they overwhelmingly got relief: Almost all of those readers (more than 99%) had their credit card debts discharged.

The amount of credit card debt that readers had discharged in bankruptcy was fairly evenly spread out; most readers reported having between $7,500 and $50,000 in credit card debt wiped out. Only a few reported getting more than $75,000 in credit card debt discharged. This makes sense, because most credit card companies don’t allow cardholders to rack up that much debt unless they have very high income.

What Happens to Medical Bills in Bankruptcy?

Next to credit card debt, the next largest group of readers (45%) had unpaid medical bills when they filed for Chapter 7 bankruptcy. While most of them (about 58%) had $4,000 or less of these debts wiped out, more than one in ten were able to discharge $50,000 or more. It’s likely that these people filed for bankruptcy specifically because of overwhelming medical bills. Almost all of the readers (99%) who had medical debt got relief from bankruptcy.

Other Common Debts Likely To Be Wiped Out

Lawsuit judgments. If a creditor sued you and got a judgment against you, you might be able to wipe out your liability for this judgment in bankruptcy if the original debt qualifies for discharge. Nearly a third of our readers had debts for lawsuit judgments, and almost all of them (98%) got relief. But you should know that, if the creditor has already placed a lien on your house or other property (which means that you have to pay the debt when you sell the property), bankruptcy won’t give you relief unless you take steps to get rid of the lien—and you might not be able to do that. (See our article on wiping out lawsuit judgments in bankruptcy.)

Business debts. If you’re personally liable for business debts (for instance, you owned a business as a sole proprietor or you signed a personal guarantee for a business loan), it’s likely that you can wipe out those debts in Chapter 7 bankruptcy. Nine out of ten readers who had these types of business debts got them fully wiped out, while another 5% got a partial discharge.

Unpredictable Debts: The Ones that Might (or Might Not) Go Away in Bankruptcy

If you have debts for back taxes and student loans, you need to meet some strict requirements that make it difficult—but not impossible—to wipe them out in bankruptcy. For a discussion of readers’ experiences with these debts in their Chapter 7 cases, see our article on wiping out tax debts and student loans.

About This Report

The data referenced above is from Martindale-Nolo Research's 2016 bankruptcy study, which analyzed survey responses from readers who had filed bankruptcy and had researched hiring a lawyer. The names of any quoted readers have been changed to protect their privacy.

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