Most unsecured debts are dischargeable in a Chapter 7 bankruptcy. “Discharge” basically means that the bankruptcy judge eliminates the legal obligation to repay the debt. But, the debt itself remains, as do its collateral consequences, if any. Bankruptcy judges do not have any authority in such areas.

Unpaid college tuition is a good example. If Jim files Chapter 7 bankruptcy and he owes tuition to State U, the judge will probably discharge that unsecured debt, as outlined below. However, if State U withheld Jim’s transcript before he filed, it may continue to do so, until he pays it or until a Georgia bankruptcy lawyer can work something out. 

An attorney does more than negotiate with creditors on your behalf. A lawyer also guides you all the way through the bankruptcy process. And, this process is often complex, especially if your debts include priority unsecured obligations, as outlined below.

Simple Unsecured Debts

Credit cards, medical bills, and lines of credit not tied to a home mortgage are the leading types of unsecured debts in Georgia. In most cases, judges discharge these debts without holding hearings or even inquiring into the matter.

Occasionally, the fraud presumption comes into play. If debtors use their credit cards within 90 days of filing, or they borrow money within 90 days, these transactions are presumed fraudulent. 

But do not let that presumption scare you. Presumptions like this one are rather easy to overcome. That’s especially true if, as is usually the case, the debtor used credit cards for living expenses. If the debtor used a credit card to buy a yacht and declared bankruptcy immediately thereafter, a Georgia bankruptcy lawyer might have a hard time explaining these events to a judge. But facts like these are exceedingly rare.

On a related note, the fraud presumption also applies to preferential payments, such as paying May and June rent in March. Your Georgia bankruptcy lawyer reviews all these red flags with you during your initial consultation.

In the old days, once a judge discharged a debt, that was largely the end of the matter. But debt buyers are much more aggressive today. The Supreme Court and the Consumer Financial Protection Bureau have recently eliminated many rules which restricted debt buyers. Now, these companies routinely try to collect debts which were discharged in bankruptcy. If that happens to you, your Georgia bankruptcy lawyer can usually handle the matter.

Georgia Bankruptcy Lawyers and Priority Unsecured Debts

Domestic Support Obligations (DSOs), like alimony and child support, past due income taxes, and student loans are the most common priority unsecured debts in a Chapter 7.

DSOs are usually never dischargeable. However, the Automatic Stay still applies to them. Section 362 of the Bankruptcy Code prohibits adverse creditor action while the case is pending. So, if your ex is garnishing your check, that garnishment must stop. The same thing applies if your ex is suing you. That lawsuit must stop as well.

Back income taxes are normally dischargeable in a Chapter 7 bankruptcy, if the past-due taxes meet the following dischargeability guidelines:

• Taxes must be at least three years old
• Returns must have been on file for at least two years and
• Taxing authority has not assessed the debt in the last 240 days

A Georgia bankruptcy lawyer must request paperwork from the taxing authority to determine the most recent assessment date. Generally, however, if you received a collections letter within the last eight months, the debt has probably been assessed.

If back taxes are nondischargeable in a Chapter 7, there are other options available, such as a repayment program through the IRS Fresh Start Initiative or a Chapter 13 repayment bankruptcy.

There are also limitations on student loan discharges. Under the Bankruptcy Code, these debts are dischargeable if the debtor has an undue hardship. This relief is available in Georgia if:

• The debtor has made a good faith effort to repay the loan,
• The hardship is permanent or will last most of the repayment period, and
• Repaying the loan would force the debtor to live below the poverty line.

This harsh rule makes it difficult to fully discharge student loans, unless the debtor has a severe physical, mental, or other disability. However, if a Georgia bankruptcy lawyer requests such relief, the debtor usually gets at least a partial discharge.

Seek Legal Counsel from a Qualified Chapter 7 Bankruptcy Lawyer

Chapter 7 bankruptcy discharges most unsecured debt. For a free consultation with an experienced bankruptcy lawyer in Georgia, contact Morgan & Morgan, Attorneys at Law, P.C. at (706) 843-2905. We routinely handle matters in Clarke County and nearby jurisdictions.