Chapter 7 can wipe out credit cards, medical bills, personal loans, old rent and most collection judgments, but it usually leaves student loans, recent income taxes and support obligations in place. For renters, graduate students and freelancers, a bankruptcy lawyer in Berkeley, CA sorts debts into those two columns before anything else.
If you already know which debts are causing the pressure, call (415) 754-0115 to schedule a free consultation, or list them through our contact page so we can review them with you.
Debts a Chapter 7 discharge commonly clears
A discharge is a court order that ends your personal liability for qualifying debts. Creditors covered by it can no longer call, sue or garnish to collect. Debts that are commonly dischargeable include:
- credit card balances, including store cards;
- medical and dental bills;
- personal loans and payday-style loans;
- past-due rent owed to a former landlord;
- utility and phone balances;
- judgments from collection lawsuits for these kinds of debts;
- the remaining balance after a car is repossessed and sold.
Our article on what debts are discharged in Chapter 7 goes into more detail on each category, including debts that require extra care.
Debts that usually survive Chapter 7
Section 523 of the Bankruptcy Code lists debts that are excepted from discharge. The categories below are the ones that tend to matter for renters, students and freelancers.
Student loans
Federal and most private student loans are not discharged unless the borrower shows "undue hardship" in a separate proceeding within the bankruptcy case, called an adversary proceeding. The standard is demanding, though federal agencies have adopted a more structured process for evaluating these requests in recent years. Our guide to bankruptcy and student loans in California explains how that process works.
Recent income taxes
Older income tax debt can sometimes be discharged if it meets several timing rules: the return was due more than three years before filing, it was actually filed more than two years before filing, and the tax was assessed more than 240 days before filing. Newer taxes, and taxes for which no return was filed, generally survive. The same framework applies broadly to California Franchise Tax Board debt.
Support, fines and certain injury debts
Child support, spousal support, most criminal fines and restitution, and debts for death or injury caused by driving while intoxicated are not discharged.
Debts tied to fraud
If a creditor proves that a debt was obtained through fraud or false statements, the court can exclude it. Large luxury purchases or cash advances shortly before filing receive extra scrutiny.
Situations specific to renters, students and freelancers
Berkeley has a large population of renters, students, researchers and self-employed people. Each group brings its own questions.
Renters
Bankruptcy can discharge back rent owed to a former landlord. For a current lease, the situation is more complicated. The automatic stay offers only limited protection against an eviction, and very little if the landlord already obtained a judgment for possession before the filing. Anyone facing an unlawful detainer case needs the timing reviewed carefully.
Students and recent graduates
A filer who is also a student may have a mix of debts: student loans that likely survive, alongside credit cards used to cover living costs that likely do not. Clearing the credit card side can make the student loan payments more manageable even when those loans remain.
Freelancers and gig workers
Irregular income complicates the means test, which averages gross income from the six months before filing. For self-employed filers, ordinary and necessary business expenses are subtracted from gross receipts, so solid bookkeeping matters.
Self-employment taxes
Freelancers often owe income tax and self-employment tax for recent years because no tax was withheld. Those recent taxes generally survive Chapter 7, which is one reason Chapter 13, with its multi-year repayment plan, is sometimes discussed instead.
When Chapter 13 handles what Chapter 7 leaves behind
Chapter 13 has its own list of debts it will not discharge, and it is broadly similar to Chapter 7's. The difference is structure. Instead of leaving surviving debts to be dealt with after the case, a Chapter 13 plan can pay priority taxes and support arrears over three to five years, while the automatic stay keeps the IRS, the Franchise Tax Board and other creditors from levying in the meantime.
For a freelancer with recent tax debt and credit card balances, or a renter who owes back support, that combination can matter more than how quickly the case ends. It also suits filers whose income is above the means test threshold for Chapter 7. Student loans are typically paid alongside the plan rather than eliminated by it, and how they are treated is something to review carefully.
Talking with a bankruptcy lawyer in Berkeley, CA
The Somal Law Firm's practice covers Chapter 7 and Chapter 13 bankruptcy, debt settlement, and IRS and tax disputes for individuals and small businesses throughout Alameda and Contra Costa Counties, from an office in Pleasanton. That mix matters when a Berkeley filer's debts include both consumer balances and tax debt, since the right answer may combine bankruptcy with a separate approach to the taxes.
For more on how cases from this county are handled, from filing in the Oakland Division to discharge, see our guide for a bankruptcy attorney in Alameda County.
Frequently asked questions
Will Chapter 7 discharge a private student loan?
Usually only through the undue hardship process, though some private loans that do not meet the legal definition of a qualified education loan may be treated as ordinary debt. An attorney can review the loan documents.
Can I file bankruptcy while I'm still in school?
Yes. Being a student does not prevent filing, and federal law prohibits discrimination in student grants and loans because of a bankruptcy filing.
Does bankruptcy affect a future apartment application?
A bankruptcy appears on credit reports for a period of years, and some landlords consider it. Others focus more on current income and rental history.
Knowing which debts will be gone and which will remain is the starting point. Call (415) 754-0115 to schedule your free consultation with The Somal Law Firm, or reach us through the contact page, and we will follow up to set a time.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.