Which debts do not go away after bankruptcy?
If you are considering filing bankruptcy, you are likely doing so because you would like to receive a discharge of your debts. After all, once you receive it, you no longer have to repay the debts subject to the discharge. Although you may think the discharge in bankruptcy applies to all your debts, there are some that remain even after the bankruptcy process has been completed.
Sometimes, whether a debt is dischargeable depends on the type of bankruptcy you file (i.e. Chapter 7 or Chapter 13). However, there are some debts that are non-dischargeable regardless of the type of bankruptcy filed. These debts include:
• Tax liens
• Debts that you neglect to mention on your bankruptcy schedules
• Student loans (except in rare circumstances discussed later)
• Recent taxes
• Fines and penalties levied by the government
• Condominium or cooperative housing fees
• Domestic support expenses, such as child support or alimony
• Any debt obtained through fraud, false representations or false pretenses
• Judgments against you in wrongful death or personal injury lawsuits based on your operation of a motor vehicle, watercraft or aircraft while under the influence of intoxicants.
As mentioned earlier, some otherwise non-dischargeable debts can be discharged by filing another type of bankruptcy. If you file Chapter 13 bankruptcy instead of Chapter 7, the following debts may be discharged (but are not dischargeable if you file Chapter 7):
• Debts incurred by owning non-dischargeable taxes
• Debts stemming from property settlements in divorce or separation matters
• Debts for malicious or willful injury to another’s property
More on student loans
As mentioned earlier, government-funded student loans are generally non-dischargeable. However, private student loans may be discharged in cases of “undue hardship.” Although you may think that by virtue of having a student loan, you are experiencing an undue hardship, in reality it is difficult to prove this. The majority of courts require you to prove the following in order to receive a discharge:
• That you cannot maintain a minimum standard of living because of the student loans;
• That you have tried in good faith to repay the loans before you filed bankruptcy; and
• The difficult financial situation caused by the student loans is likely to continue for most of the repayment period of the loan
Since it is required that you prove the onerous financial situation caused by the loan is likely to continue indefinitely into the future without any possibility of relief (i.e. a good paying job, inheritance or financial windfall), most of those attempting to discharge student loans fail.
If in debt, get help
Although you may be overburdened with non-dischargeable debts, you should not let this fact discourage you from seeking bankruptcy protection for a couple of reasons. For one, bankruptcy can rid you of other debts, such as credit cards and medical bills, which you are likely struggling with, freeing up income to devote towards paying your non-dischargeable debts. Also, Chapter 13 can give you extra help in becoming current or paying off your non-dischargeable debts, by giving you three to five years to accomplish this and protecting you against threats of lawsuits, garnishments and other creditor collection tactics in the meantime.
To learn more about the options available to you, speak with an experienced bankruptcy attorney. An attorney can listen to your situation and outline the best solutions to your debt problems.