One of the many myths about bankruptcy is just what debts are eligible for inclusion. There are many ways a person can become over-extended. Certainly, credit card debt is easily at the top of the list but there are other debts to also consider. For example, a person might incur large medical expenses above and beyond their insurance coverage. A common debt that has been top in the news of late is student debt. Sadly, while the cost of education continues to rise, the opportunities for employment to repay that debt are not always available. Additionally, those who have divorced often struggle to pay child support and alimony payments to their ex-spouse, especially if they have lost their job during the recent pandemic.
While there are organizations that help people in debt, for some, filing bankruptcy seems like the best and/or only solution to help them obtain a clean slate and start again. However, not all debt is treated equally under bankruptcy laws.
Debt Not Discharged by Bankruptcy
Secured Loans: Secured loans such as those connected to land or vehicles are not wiped out in a bankruptcy filing unless you elect to surrender the collateral in the case. If you want to keep the collateral in a Chapter 7 bankruptcy, as in a car, home, etc., you will sign a separate agreement to officially disclose that intention (called a Reaffirmation. Agreement).
If you want to keep collateral in a Chapter 13 repayment plan case, you declare this in a proposed plan and set forth that the payments will continue to be made on that loan. Sometimes when the collateral is not a house, the loan terms may be modified to reduce interest or even part of the principal owed.
Child Support: Past due and/or current child support payments are also not discharged in a bankruptcy case, but they must be listed as part of your debts. Therefore, you would still be responsible for those payments. If you file a Chapter 13 repayment plan, you may have up to five years to catch up any back support owed.
Student Loans: Student loans can only be eliminated in a bankruptcy proceeding if they are first, disclosed in the paperwork and second, determined through a Court Trial and a judge’s written opinion, to cause an “undue hardship” on the debtor and/or the debtor/s dependents if they were not discharged. This is usually a time-consuming and expensive process to have such a trial within your bankruptcy case.
If these steps are not taken, it will not result in the discharge of student loans by simply filing bankruptcy alone. Fortunately, other repayment programs are available that have nothing at all to do with the bankruptcy laws. A good bankruptcy lawyer should be able to advise you on the best route to take as to your student loans.
IRS Payments/State Tax Debts: IRS payments and state tax debts are usually not discharged by bankruptcy, but there are exceptions. Sometimes they can be wiped out. Regardless of whether they can ultimately be wiped out, they must be disclosed in your bankruptcy paperwork as all debts must be disclosed. Sometimes taxes that cannot be discharged (wiped out without paying the debt) in Chapter 7 can be paid back at a lesser amount if it is handled in a Chapter 13 repayment plan. This might involve paying them back with no interest or late fees and sometimes even the underlying principal tax debt can be cut back to a reduced amount. An experienced bankruptcy attorney can guide you through your best options.
Debt Related to Fraudulent Activity: If you owe money due to something you have done involving fraud or dishonesty, the aggrieved creditor has an opportunity to challenge your bankruptcy by filing a suit inside the bankruptcy proceeding to ask for a trial to determine whether that particular debt should be discharged. If the suit succeeds, that debt will not be wiped out.
If you file a bankruptcy and it is challenged by such a suit, you really will need an excellent, experienced bankruptcy attorney to defend your position in that suit. This can be expensive, but if the amounts in dispute are very large, it will be worth it to hire capable counsel to help you. At Bankruptcy Advocates we have considerable experience defending our clients’ interests from suits brought in the bankruptcy court challenging whether some or all debt should be wiped out in the case.
There may be other circumstances where you question whether to include a debt in your bankruptcy case. Therefore, connecting with a professional bankruptcy law firm such as Bankruptcy Advocates is your best solution. Don’t assume you know the answers, always ask your attorney.
While bankruptcy can be a huge benefit to some as a means of erasing some or all of their debt and allowing for a fresh start, there are also those situations that can’t be fixed.
The bankruptcy attorneys of Bankruptcy Advocates are skilled at all aspects of bankruptcy, both personal and small business, and can give you the assistance you need to get out from under your debt. Give us a call. The first consultation is free.
Southern Illinois Bankruptcy Attorney law firm, Bankruptcy Advocates is proud to state that by Act of Congress, we have been designated a Debt Relief Agency.
We are located in Carbondale and serve a wide geographic community including Carbondale, Murphysboro, Marion, West Frankfort, Johnston City, Benton, Herrin, DuQuoin, and Pickneyville. Our southern Illinois bankruptcy attorneys help people file for relief under the Bankruptcy Code. Give us a call at 618-549-9800 or email us at [email protected] to speak about your case or legal matter. Convenient appointment times are available. We can meet using Zoom or in person.