Filing for bankruptcy is quite like starting a new chapter in a book. A bankruptcy discharge gives you a fresh start by either reducing or wiping out your debts when you have no other option.
However, not all debts can be discharged in a bankruptcy petition. Secured debt, for instance, is a type of debt that is secured by collateral, such as a mortgage or a car loan. Since the lender has a claim to the collateral in case of default, these debts are typically not dischargeable in bankruptcy.
In this article, we will discuss bankruptcy and the debts that bankruptcy law says all filers remain responsible for paying. It will help you to make informed decisions about your financial future and avoid any unintended consequences.
What is Bankruptcy?
Bankruptcy is a legal process in which individuals or other entities who are unable to repay personal liability or business debts to creditors can seek relief from some or all of their debts. There are several kinds of bankruptcy, but Chapter 7 and Chapter 13 of the bankruptcy code are among the most typical forms pursued as they apply to individuals.
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Is chapter 13 bankruptcy right for you? Why?
Types Of Non-dischargeable Debts In a Bankruptcy Filing
Several types of debts can't be discharged in a bankruptcy filing. Here are a few of them:
Student Loans
Student loans are a type of loan provided to students by the government or private lenders to help them pay for their education. In most cases, student loans are not dischargeable in a bankruptcy filing.
"Since a student loan will appear on your credit report for seven years after filing for bankruptcy, it cannot be discharged," said Olivia Tonks, the Marketing Manager of Fleet Tutors.
The student loan rule has a few narrow exceptions. For example, if you cannot work again due to a disability and can demonstrate this, your student loans may be discharged. Furthermore, if you can demonstrate that the loans are causing undue hardship and that you have made every effort to repay the loan, the loans may be discharged.
Child Support and Alimony Obligations
Child support and alimony obligations are payments that are ordered by a court to be made by one party to another for the support of a child or a former spouse. These payments are typically made on a regular basis and are considered a priority obligation.
"It's important to note that bankruptcy laws view alimony as a moral and legal obligation, one that should be fulfilled despite the financial difficulties of the payer. Therefore, it's important to consider the potential impact of alimony payments on your finances and plan accordingly", says Tiffany Homan, the COO of Texas Divorce Laws.
Tax Debts
Tax debts refer to the amount of money owed to the government for taxes that have not been paid. This can include federal, state, or local taxes.
Many types of taxes are ineligible for discharge in bankruptcy. However, there are some exceptions.
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Federal or state income taxes can be discharged in Chapter 7 cases if they are related to a return that was due at least three years prior to your bankruptcy case. The three-year period includes any tax payment extensions granted by the state or federal government.
Non-income tax debts, such as tax liens and property taxes on your property, cannot be discharged in bankruptcy.
Debts Incurred Through Fraud or Willful Misconduct
Debts incurred through fraud or willful misconduct are not dischargeable in a bankruptcy filing. This means that individuals who owe debts due to fraudulent or illegal behavior will still be responsible for repaying these debts, even if they file for bankruptcy.
Should you go bankrupt if it doesn't discharge all of your debts?
Filing for bankruptcy may not necessarily discharge all of your debts, and it can have significant consequences for your financial future. It is important to consult with a financial advisor or bankruptcy attorney before filing for bankruptcy. They can help you evaluate your specific situation and determine whether bankruptcy is the best course of action for you and make sure you get proper bankruptcy protection.
Conclusion
In conclusion, bankruptcy is a legal process that can provide a fresh start for individuals struggling with overwhelming debt. However, it's essential to understand that bankruptcy should be your last resort, and you explore other debt-relief options before choosing it.
FAQ
Student loan debt is generally considered to be the most difficult type of debt to discharge via bankruptcy. Student loan debt can only be discharged in rare circ*mstances and typically requires a showing of undue hardship, which is difficult to prove.
In bankruptcy, certain types of debt can be discharged, meaning the debtor is no longer legally responsible for paying them. Some common examples of dischargeable debts include:
- Medical bills
- Credit card debt
- Personal loans
- Utility bills
- Payday loans
- Certain types of tax debt
- Unsecured debts (debts not backed by collateral)
If a creditor attempts to collect on a discharged debt, you can file a complaint with the court reporting the action and ask for sanctions against the creditor. The bankruptcy court will look into the matter to ensure the discharge is not violated.
