On this page

What's next

man with phone and credit card
Debt Resolution

March 20, 2024

9 min

Can I Still Use My Credit Card after Debt Consolidation?

A woman sits on a couch holding a piece of paper and looking confused
Debt Resolution

March 15, 2024

11 min

A Guide to Debt Re-Aging

Judge Dismissing Debt Lawsuit
Debt Resolution

November 6, 2023

8 min

How to Get a Debt Lawsuit Dismissed

is debt relief right for you
Debt Resolution

March 7, 2022

4 min

Is Debt Relief Right for You?

Earn a high-yield savings rate with JG Wentworth Debt Relief

Does Bankruptcy Clear All Debt?

Does Bankruptcy Clear All Debt?

by

JG Wentworth

July 8, 2024

9 min

Image of "what's next" on paper in front of US currency

For individuals drowning in an overwhelming sea of debt, the idea of bankruptcy can feel like a life raft – a means of escape from the unrelenting waves of financial stress. However, the question that often lingers in the minds of those considering this option is a crucial one: does bankruptcy truly provide a clean slate, wiping away all forms of debt? The answer, as with many aspects of personal finance, is nuanced and multi-layered. 

This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions. 

The two primary forms of bankruptcy 

Before diving into the specifics of which debts are dischargeable and which are not, it’s important to understand the two primary forms of bankruptcy available to individuals: 

  • Chapter 7 bankruptcy: Also known as “straight bankruptcy,” this form of bankruptcy involves the liquidation of non-exempt assets to pay off as much debt as possible. After this process, most remaining unsecured debts (such as credit card balances and medical bills) are discharged. 

 

  • Chapter 13 bankruptcy: Under this form of bankruptcy, individuals with a regular income propose a repayment plan to catch up on missed payments over a period of three to five years. At the end of this period, any remaining unsecured debts may be discharged. 

 

Reasons why individuals file for bankruptcy  

While damaging credit is a major consequence, for those facing insurmountable debt burdens, bankruptcy can be the most viable path to regaining financial control. Here are the most common reasons why most people file for bankruptcy… 

  • Overwhelming unsecured debt: If you have large amounts of credit card debt, medical bills, or other unsecured debts that you cannot realistically pay off in a reasonable time frame, bankruptcy allows you to eliminate or restructure these obligations. 

 

  • Foreclosure/repossession prevention: Filing for bankruptcy can temporarily halt foreclosure on your home or repossession of other property by creating an “automatic stay” that stops creditor actions. 

 

  • Increased income protection: Bankruptcy exemptions protect certain assets and income from being taken, allowing you to maintain a basic standard of living during and after the process. 

 

  • Harassment relief: The automatic stay also stops debt collector harassment, lawsuits, wage garnishments, and other creditor actions against you. 

 

  • Fresh financial start: Bankruptcy provides a way to discharge burdensome debt that is preventing you from achieving financial stability and moving forward. 

 

  • Saving assets/property: Chapter 13 allows you to reorganize debts and catch up on missed payments over time while keeping key assets like a home or car. 

 

Debts that are typically dischargeable in bankruptcy 

While the specifics may vary depending on the type of bankruptcy filed and the individual’s circumstances, the following debts are generally dischargeable: 

 

  • Medical bills: The high cost of healthcare can often lead individuals to accrue significant medical debt, which can be discharged through bankruptcy. 

 

  • Personal loans: Unsecured personal loans, such as those taken out for consolidation purposes or major purchases, are typically eligible for discharge. 

 

  • Utility bills: Outstanding balances owed to utility companies (e.g., electricity, gas, water) can often be eliminated through bankruptcy. 

 

  • Certain tax debts: Depending on the age and type of tax debt, some tax liabilities may be dischargeable. 

 

Debts that cannot be discharged in bankruptcy 

While bankruptcy offers a fresh start for many forms of debt, there are certain types of obligations that cannot be erased through this process. These include: 

  • Student loans: In most cases, student loan debt cannot be discharged in bankruptcy, except in rare cases of undue hardship. 

 

  • Alimony and child support: Domestic support obligations, such as alimony and child support payments, are typically non-dischargeable. 

 

  • Recent tax debts: Tax debts that are less than three years old, as well as certain other types of tax liabilities, are generally not eligible for discharge. 

 

  • Criminal fines and restitution: Debts arising from criminal activities, such as fines and restitution orders, cannot be discharged through bankruptcy. 

 

  • Secured debts: If you wish to keep an asset secured by a loan (e.g., a home or car), you will still be responsible for paying off the associated debt. 

"*" indicates required fields

Step 1 of 4 - Debt Amount

Choose your debt amount

$5,000 $25,000+

Do you want to avoid bankruptcy? 

If you would prefer to resolve your debt instead of filing for bankruptcy, JG Wentworth might be able to help. Through our Debt Relief Program, we’ve helped countless individuals get a grip of their debt and eventually regain their financial freedom. If you have $10,000 or more in unsecured debt, our program could help.* 

  • One monthly payment 
  • We negotiate on your behalf 
  • Average debt resolution in as little as 48-60 months 
  • 24/7 support 
  • We only get paid if we settle your debt 

 

If that sounds like the best path to take for your finances moving forward, don’t hesitate to contact one of our dedicated debt relief specialists.  

 

The importance of informed decision-making 

While bankruptcy can offer a much-needed reprieve from the burden of overwhelming debt, it’s crucial to understand that this process is not a one-size-fits-all solution. The decision to file for bankruptcy should be made with careful consideration and a thorough understanding of the potential consequences, both short-term and long-term. 

It’s also important to recognize that bankruptcy should be viewed as a last resort, after exploring alternative debt management strategies, such as debt consolidation, credit counseling, or negotiating with creditors. In some cases, these alternative approaches may be more suitable for an individual’s unique financial situation. 

Ultimately, the path to financial recovery is a highly personal journey, and the decision to pursue bankruptcy should be made in consultation with qualified legal and financial professionals. By understanding which debts can and cannot be discharged, you can make an informed decision that aligns with your goals and sets them on a path toward a more secure financial future 

* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required. 

Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment. 

JG Wentworth does not pay or assume any debts or provide legal, financial, tax advice, or credit repair services. You should consult with independent professionals for such advice or services. Please consult with a bankruptcy attorney for information on bankruptcy. 

Recommended reading for you

man with phone and credit card
Debt Resolution

Mar 20, 2024

9 min

Can I Still Use My Credit Card after Debt Consolidation?

A woman sits on a couch holding a piece of paper and looking confused
Debt Resolution

Mar 15, 2024

11 min

A Guide to Debt Re-Aging

Judge Dismissing Debt Lawsuit
Debt Resolution

Nov 6, 2023

8 min

How to Get a Debt Lawsuit Dismissed

is debt relief right for you
Debt Resolution

Mar 7, 2022

4 min

Is Debt Relief Right for You?