Declaring bankruptcy is typically seen as a last resort for those with a dire debt burden. Maybe your debt has become unmanageable due to health problems, unemployment, or a divorce, and you’ve considered all other debt-relief options but to no avail, declaring bankruptcy might be the lifeline you need towards a fresh financial start.
But how fresh is that start? Chapter 7 Bankruptcy allows for the discharge of a series of unsecured debts, including credit card debt, personal loans, overdue bills, medical bills, overdue taxes, and more. However, bankruptcy cannot save you from all types of debts. In this post, we examine nine types of debt that bankruptcy cannot wipe off.
- Secured Debts
Secured debts are debts that are backed by collateral. Common examples include mortgage and auto loans. Such debts cannot be written off by bankruptcy. If you want to keep your car or house, then you need to keep making the required monthly payments. Else, you’ll have to return it to the lender.
- Student Loan
About 43 million adult Americans carry a federal student loan, estimated to be $1.5 trillion in federal debt plus an estimated $199 billion in student loans from private sources. Both federal and private student loans are exempt from bankruptcy.
There are special circumstances where they might be wiped off. For instance, a disability that prevents you from working. But you first have to prove that you’ve done all you can to make payments. This can be hard to prove in court.
- Government Debts
When you owe Uncle Sam, there’s no getting around it. The money you owe the government in the form of taxes, penalties, fines, and other fees are non-dischargeable.
While you might get rid of taxes that are older than three years old, there’s no getting away with more recent income tax obligations.
- Child Support and Alimony
Child support and alimony payments aren’t eligible for bankruptcy discharge. If you get divorced, and your divorce agreement specifies you are responsible for your ex’s legal fees or other forms of debt, then you’re legally responsible for them. However, debts related to diving marital property might be considered for discharge, depending on your state.
- New Credit Card Debt
Maybe you’re thinking, “Well, I’ve filed for bankruptcy, why not take on new credit cards and go on a spending spree. At least, I can have them wiped off with bankruptcy”. Well, it doesn’t work that way. Any debt you incur after your bankruptcy filing would not be considered for discharge.
- Reckless Debts
Debts that you incur from reckless actions on your part cannot be discharged. For instance, if you get into debt due to a criminal act or malicious conduct you engaged in, you cannot get discharged. This may include more benign debts incurred from white-collar crimes, false representation, or embezzlement. It also includes egregious debts like those incurred for death or injury due to driving under the influence of alcohol or other substances.
- Debts you couldn’t discharge previously.
If you’ve filed for bankruptcy before and certain debts weren’t discharged, you cannot get them discharged by filing again. Do not waste your time or money – the court has a proper record of your previous bankruptcy proceedings.
- Debts not included in your bankruptcy filing
If you fail to include some debts for whatever reason, then it won’t be considered for discharge. It doesn’t matter if an unsecured debt. The general assumption is that you didn’t include it because that was what you wanted. Even if it was an honest mistake, you could not go back to retroactively revise your list. That’s why you have to ensure you list all dischargeable debts before filing for bankruptcy.
- Someone else’s debt
There are certain circumstances in which you become responsible for someone’s else debt. For instance, acting as a cosigner for a loan your friend took makes you liable for payment. You cannot get such a debt discharged. Simple mistakes like using your name instead of your spouse’s name or identity theft can make you incur debt you do not own. That’s why you need to closely monitor your debt profile.
Having to declare bankruptcy isn’t a blissful experience. Managing your finances better can help you avoid it. Before opting for bankruptcy, make sure you try other options: tighten your budget, negotiate with your creditors, or seek financial help. If all fails, bankruptcy might be your best bet. While it won’t completely solve your debt problem, it’ll drastically reduce your debt burden, and you can build up from there.
Contact us today for more information regarding your current debt structure and things that you can do to better allocate your funds moving forward. Whether it’s debt restructuring, refinancing, declaring bankruptcy, debt consolidation, or other forms of legal issues, we can help guide you through the maze. You may have many unanswered questions, and we’re standing by with the information to help you.