While the insolvency process is designed to help you find relief from extreme debt, it is a common misconception that all of your debts go away at its conclusion. What happens to your debts when you declare bankruptcy depends on the type of debt and the status of your payments in certain situations.
By definition, insolvency can be used only to discharge debts that are not secure. This type of debt is tied to an asset, which your lender owns. For example, if you own a home and make mortgage payments on it, your creditor may be able to take over ownership of this asset when you declare bankruptcy in an attempt to retain some of what you owe on the loan.
Typically, insolvency will eliminate all of your unsecured debts. These include things like credit card bills, personal loans, unpaid utility bills, medical bills, payday loans, and more. However, there are certain types of unsecured debts that are not eligible for discharge. These include:
- Student loans that you have possessed for 10 years or less.
- Any child or spousal support payments you owe.
- Restitution and fines ordered by a court.
- Debts that you acquired as a result of theft or fraud.
How both secure and unsecured debts are handled during the insolvency process is highly variable and can be difficult to fully comprehend. To find out more about which of your debts may be discharged when you declare personal bankruptcy, get in touch with us at Morgan & Partners Inc.