Will Filing for Chapter 7 Bankruptcy Get Rid of All My Debts?
It can be easy to fall into a bad financial situation after losing a job, suffering a medical emergency, or being the victim of predatory credit practices. At a certain point, it may be better to get a fresh start to keep debt collectors at bay. Bankruptcy can take care of credit card debt, medical bills, and most personal loans. However, bankruptcy doesn’t clear all personal liability.
Some debts are not dischargeable in bankruptcy. Before going through the bankruptcy process, make sure you understand your nondischargeable debt obligations. Talk to a bankruptcy lawyer for legal advice about a Chapter 7 bankruptcy case.
Chapter 7 bankruptcy involves selling off nonexempt property and using the money to pay creditors. After bankruptcy, you can have a fresh start with no more liability for those discharged debts. Filers need to qualify for Chapter 7 bankruptcy, including meeting income requirements and a means test and going through credit counseling.
Many people think that if they simply file Chapter 7 bankruptcy, then they will get rid of all of their debts. Unfortunately, this is not the case. There are some types of debts that you cannot discharge in bankruptcy. This means that even if you complete bankruptcy proceedings, you still have to pay back certain debts. These debts include child support, alimony, student loans, most taxes, many secured debts, and debts not listed in your bankruptcy petition.
Child support is one of those debts that bankruptcy laws will not permit you to discharge. Whether you receive a Chapter 7 bankruptcy discharge or not, you will still owe the same amount of child support that you did before you filed for bankruptcy, or more.
You also should not stop paying your child support simply because you have filed for bankruptcy, since child support orders can still be enforced in bankruptcy proceedings. The same rules apply for alimony or spousal support that you have been ordered by a court to pay. Despite your bankruptcy discharge, you still will owe alimony, just as you did before the bankruptcy.
Student loans are generally not dischargeable in Chapter 7 bankruptcy proceedings. Even if you discharge all of your other debts in bankruptcy, you still will be stuck with your student loan payments.
There may be an exception if the student loans will cause you “undue hardship.” Undue hardship is a very high standard. A bankruptcy court will consider several factors for undue hardship, including:
- Your standard of living with repayment
- If you will suffer from a continuing hardship for a significant portion of the loan repayment period
- If you are making good-faith efforts to repay the loan before filing for bankruptcy
Unpaid state and federal taxes are typically difficult to discharge in bankruptcy. There are some limited circumstances in which you may be able to discharge old income tax debts. However, you may be able to negotiate with the IRS for a payment plan or offer in compromise to take care of your tax debt.
You may have difficulty discharging secured debts in Chapter 7 bankruptcy. Secured debts are debts that are secured by property, such as a house or car. While bankruptcy can eliminate the debt, it does not eliminate the lien. This means that while you can discharge your mortgage debt in your bankruptcy proceedings, the mortgage holder still will have a lien on your house. Bankruptcy cannot prevent your lender from executing the lien through repossession or foreclosure.
While Chapter 7 is a more straightforward process than a Chapter 13 filing, it is still complex. If you fail to list all your debts, they may not be included in discharged debts, and the sooner you file the sooner you can stop collection activity and harassment from credit card companies.
However, that does not mean you should not take the time to talk with an experienced bankruptcy attorney about your options. Your bankruptcy attorney can help you understand the bankruptcy code and the best type of bankruptcy for you.
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