Judgements

As a general rule, filing bankruptcy effectively eliminates judgements, debts, tort liability and others types of general liability. The official term for eliminating these types of obligations is discharge. The general rule applies to Chapter 7, 11 and 13, although the discharge process is different in each chapter. Not all debts are subject to discharge. The U.S. Bankruptcy Code carves out numerous exceptions.

Judgements for most types of general liability are dischargeable according to bankruptcy law. Examples of general liability from adverse court rulings include suits based on loan defaults, non-payment of credit cards, tort liability, breech of contract, and many others.

Bankruptcy also effectively eliminates liability based on secured debts. For example, if you lose your home through foreclosure, any remaining balance owed becomes a deficiency balance. A deficiency balance is contractual liability created by secured notes, deeds of trust, and other loan documents. These documents survive foreclosure and the terms are still enforceable as a contract even though you no long possess the collateral. Bankruptcy wipes out deficiency judgements. Alternatively, debtors who still posses their home may surrender property and discharge debts associated with home mortgages. You cannot keep collateral and discharge the entire debt.

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