Bankruptcy is often viewed as a taboo subject with people looking down on those who go through it, but there’s no shame in needing a way out of your financial troubles. We have a system that isn’t always the most relenting on those who don’t have a lot of money of their own, so bankruptcy provides an outlet for people who need to shed themselves of debt they can’t overcome. In fact, over 500,000 bankruptcy cases were filed in 2020.
So, if you find yourself at the last resort and ready to file, you need to know what debt you can and can’t have forgiven through the Chapter 7 filing process. We want to make sure you know what debts can’t or generally won’t be forgiven to make sure you don’t file for the wrong reasons.
Student loan debt
We’ll knock this one out first because we recently wrote about it. Federal laws generally don’t allow people to have their student loan debt forgiven through the bankruptcy process. The standard to prove you need the debt forgiven and can qualify is extensive. For more on why these debts in particular are a challenge, check out our blog linked above!
Child support and alimony
The law specifically prevents this type of debt from being forgiven because it’s viewed as a responsibility to your child or ex-spouse. You were originally asked to pay this money because the courts deemed it necessary to support your children and/or ex-spouses. This responsibility won’t be avoided by the bankruptcy process because the need still exists.
Debts owed in personal injury and wrongful death cases
This is another specific type of debt you won’t be able to get out from under during your filing. These debts and some other court-ordered payments directly to victims or their families from a crime or action you were determined to intentionally commit will remain on your record. The reasoning is similar to child support and alimony: the need remains for the individual(s) who are owed this debt.
Some federal and state taxes
The government will still expect you to pay back any recently imposed taxes. This includes any income, property, and social security taxes you owe from the last few years. If your back taxes are several years old, however, the court may forgive this debt as it’s become clear you aren’t able to catch up on those figures.
This also applies to any government-ordered fines, fees, or restitution you were recently ordered to pay.
Home and car liens
There’s an important distinction for these debts: if you plan to or are required by law to keep your home or car after bankruptcy, you will not be able to have any liens against them forgiven. Doing so would allow you to forgo paying for the product you signed a secured loan for. If you are permitted to and plan to give up these assets during filing then you may be able to get out of those loans.
Certain recent debts
Bankruptcy laws prevent you from discharging debt you incurred recently (often within the last 90 days) to prevent people from wracking up credit card debt with the intention of having this debt forgiven in bankruptcy. Any luxury goods or services you purchase using debt in the months prior to your filing will likely stay on your record. However, if the incurred debt is related to a necessity like healthcare you should be able to get this forgiven in your filing.
The list of debts you can’t have forgiven in bankruptcy goes beyond what we talked about here today, so it’s important to reach out to a bankruptcy attorney before you file. Your attorney should be able to look at your financial situation and explain to you which of your debts will remain on your record even after your case is complete. At Hedtke Law Group, we pride ourselves on helping clients get a fresh start. Contact us and get your case started.