What Can Bankruptcy Not Do?

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In many respects, bankruptcy is a fresh start for those who are experiencing financial distress. If you feel like you simply cannot tread water anymore and you’ll soon drown in your debts, filing for bankruptcy can be a great way to help you get back your financial footing. There are limits to what bankruptcy can do, however; unfortunately, some of your debts will not be discharged at the conclusion of your bankruptcy case. This blog will take a look at some of these debts.

Child Support or Alimony Payments. In almost every case, bankruptcy filers who have fallen behind on child or spousal support are still on the hook for these court-ordered payments. If these obligations are a cause of your decision to file for bankruptcy, you should attempt to secure a modification to your support orders (after retaining an experienced family law attorney). Even if you get a modification, though, you must still pay these arrearages.

Tax Debts. Even if you file for Chapter 7 bankruptcy (straight/liquidation) bankruptcy, except Uncle Sam to still have a legal avenue to get his fair share. In rare circumstances, bankruptcy filers might be able to get personal income taxes discharged at the end of a bankruptcy. You must meet several conditions for this to be granted, though. A better bet for taking care of your federal tax debts is to call the IRS directly and find out if you are eligible for some sort of relief program like the offer in compromise. Back taxes other than income taxes, like payroll taxes for your business, will have to be paid back regardless.

Secured Debt (for Chapter 7). Remember, there are two types of bankruptcy most commonly used for personal bankruptcy cases: Chapter 7 and Chapter 13. Chapter 7 cases are much quicker, but they require you to give up many of your assets that are collateral for a debt (like property, multiple cars, boats, and other nonexempt assets). So, in a sense, secured debt can be wiped out with a Chapter 7 bankruptcy, but you may have to give up some significant assets. You will generally be able to keep most of your property in a Chapter 13 case, but you must make regular payments to your creditors for several years.

Student Loans. To the dismay of millions of former students in the country, bankruptcy cannot discharge student loan debt. You might be able to get your student loans forgiven if you can prove to a court that paying your student loans would present an undue hardship—that is, you do not have the ability to pay the loans currently and in the foreseeable future. This is a difficult standard to prove, though.

Will Your Goals Be Met?

Before you file for bankruptcy, it is absolutely imperative that you make sure you understand the consequences of going through with it. It is indisputable that bankruptcy is not nearly as scary as some have made it out to be, but there are a few limits on what it can accomplish for you. Our team would be honored to meet with you and discuss your needs and goals. We want to figure out how to free yourself of the debt that’s holding you back. Reach out to us soon to take advantage of a free consultation.


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