When Colorado residents become deep in personal debt, often, they do not care what type of debt it is. Indeed, when the bills are mounting up, it makes little difference to the person what the bill is for, being as though it must be paid. In these circumstances, Chapter 7 bankruptcy may be an option.
While some may think certain people are immune from bankruptcy, that is simply not the case. For example, rapper DMX recently filed for Chapter 7 bankruptcy after becoming deeply in debt. DMX indicated he was down to $50 cash on hand, with no personal property of any value available to pay off his bills. On the other hand, he maintained several different kinds of debt, including more than $1 million in unpaid domestic-support obligations, $453,000 on a mortgage, and $479,000 owed to unsecured creditors.
Distinguishing between the various types of debt can be important in Chapter 7. This is because the type of debt at issue can be very important to determining whether the person is able to discharge the debt through bankruptcy.
For instance, child support and spousal maintenance payments are typically not discharged in Chapter 7. The same is true of taxes and student loans, with certain exceptions. On the other hand, unsecured debt, like credit card bills, can be discharged. Accordingly, even if a person has certain debt they cannot discharge, the discharge of this other debt can help them clear up their income to pay-off the non-dischargeable debt.
Ultimately, while the rules remain the same, each case is different. Accordingly, individuals should consult with a bankruptcy attorney to determine what the best option for them is under their personal circumstances, which includes examining precisely what type of debt they have and how to best handle it.
Source: The Wall Street Journal, "Rapper DMX running low on cash," Jacqueline Palank, Sept. 19, 2013