What can you Discharge in Bankruptcy?

The idea behind bankruptcy is to give debtor's what is commonly called a "fresh start," meaning they get restart their financial life without dragging along the debt that's been holding them back.

So good bye to credit card bills, medical bills, personal loans, and even overpayments from unemployment and social security. A bankruptcy can even strip a judicial lien right off your house and in some cases get rid of a second mortgage altogether. These debts are officially discharged in a bankruptcy and creditors are forever barred from trying to collect them.

Not surprisingly, however, the government, which controls the bankruptcy code, likes to insulate itself from the discharge that other creditors have to endure.

For instance, it is very difficult to discharge your old tax debt. It is very, very difficult to discharge student loans, which are often guaranteed by the government.

The government protects other sorts of debts from discharge on public policy grounds. You can't discharge your child support arrearages because that would discourage parents from supporting their kids. You can't discharge restitution payments because that would allow thieves to avoid paying back their victims. You can't discharge a judgment for defrauding someone for the same reason.

It's also important to remember that bankruptcy won't stop a bank from foreclosing on your home. Otherwise we could all stop paying our mortgage and just keep our house. Imagine how fresh that start would be!

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