Bankruptcy can eliminate many common debts, but it does not erase everything. In New York, whether a debt can be wiped out depends on the type of debt, the bankruptcy chapter you file under, and how the obligation came about. When bills are piling up, knowing what bankruptcy can and cannot do helps you make informed decisions early and avoid costly misunderstandings.
How Bankruptcy Discharges Debt in New York
A bankruptcy discharge is a court order that permanently removes your legal obligation to repay certain debts. Most individuals in New York file under Chapter 7 or Chapter 13, and both offer debt relief in different ways.
Chapter 7 focuses on wiping out eligible unsecured debts, often within a few months. Chapter 13 uses a court-approved repayment plan, typically lasting three to five years, and may discharge remaining qualifying balances at the end.
Not every debt qualifies, and some debts may be treated differently depending on the chapter.
Debts Bankruptcy Can Usually Wipe Out
Many of the debts that cause the most financial stress are unsecured, meaning they are not tied to property. These are often eligible for discharge.
Common dischargeable debts include:
- Credit card balances
- Medical bills
- Personal loans and payday loans
- Utility arrears
- Old lease obligations
- Certain lawsuit judgments
- Business debts from failed sole proprietorships
If a debt is unsecured and did not arise from fraud or misconduct, it is often eligible for discharge under Chapter 7 or Chapter 13.
What Happens to Credit Cards and Medical Bills
Credit cards and medical bills are among the most common reasons people consider bankruptcy. In most cases, these debts are fully discharged.
Once the case is complete, creditors can no longer collect, sue, or report balances as owed. While the bankruptcy itself appears on your credit report, the underlying debt no longer exists.
We often see clients relieved to learn that medical debt, even large balances tied to surgery or hospitalization, is usually treated like any other unsecured claim.
Debts Bankruptcy Usually Cannot Wipe Out
Some debts are excluded by federal bankruptcy law, regardless of where you live. Filing in New York does not change these rules.
Non-dischargeable debts typically include:
- Most student loans
- Child support and spousal support
- Recent income tax debt
- Debts arising from fraud or intentional harm
- Court fines and criminal restitution
- Certain government penalties
These debts survive bankruptcy, although Chapter 13 may still help by organizing payment terms or stopping collection actions while the case is active.
Student Loans and Taxes in New York Bankruptcy Cases
Student loans are not automatically discharged. In rare cases, they may be eliminated if you can prove undue hardship through a separate legal process, which requires strong evidence.
Tax debt depends on timing and compliance. Older income tax debt may be dischargeable if strict rules are met, including filing returns on time and waiting the required number of years. Recent tax debt generally remains.
We review tax timelines carefully to determine whether relief may be available.
Secured Debts Like Mortgages and Car Loans
Secured debts are tied to property, such as a home or vehicle. Bankruptcy can wipe out your personal obligation to pay, but it does not automatically remove the lender’s lien.
You usually have options:
- Surrender the property and discharge the balance
- Keep the property and continue paying
- Catch up on arrears through a Chapter 13 plan
The right approach depends on your goals and financial picture.
How Chapter 7 and Chapter 13 Affect Dischargeable Debts
Chapter 7 provides a faster discharge for eligible debts but may involve asset review. Chapter 13 allows you to keep property while catching up on missed payments over time.
Both chapters can discharge unsecured debts, but Chapter 13 may also discharge certain debts that Chapter 7 cannot, depending on the circumstances.
Choosing the right chapter matters, especially when you are balancing income, assets, and long-term plans.
Bringing It All Together and Taking the Next Step
Bankruptcy can wipe out many of the debts that make it hard to move forward, but it does not erase everything. Knowing which debts qualify helps you set realistic expectations and avoid surprises.
If you are considering bankruptcy in New York, we can review your debts, explain what can be discharged, and help you decide which option fits your situation. Reach out to Robert H. Solomon, PC, to discuss your next steps and get clear answers about your financial options.