Anyone contemplating filing bankruptcy needs to understand that some debts - including mortgages, auto and student loans, taxes, back child support and alimony - are not covered by bankruptcy and must still be paid.
What Debts Are Not Discharged By Filing Bankruptcy?
In a Chapter 7 case, the most common type of personal bankruptcy, the court doesn't allow an individual to keep their assets, but most exemptions allowed under state and federal law are large enough to cover a secured debt such as a house mortgage a car loan.
However, if the item's value is greater than the exemption, the debtor may have to sell the property to pay their debt since the court won't discharge it in the bankruptcy.
The U.S. Bankruptcy Court gives the utmost protection to child support or alimony that is owed to a spouse, former spouse, the debtor's children or to a government agency. Court protection is also extended to debts that resulted from a divorce or separation agreement and the ex-spouse doesn't need to file a complaint in order to protect this type of debt from being discharged.
Student loans, whether issued by the government, a non-profit lender or an educational loan fund, cannot be discharged in a bankruptcy unless the debtor can prove additonal payments would create an unusual hardship for them.
If the debtor has made recent purchases of non-essential items or acquired cash advances on a credit card, they shouldn't expect to see those charges included under the bankruptcy. Consumer debts owed for luxury goods or services that cost more than $500 and are incurred within 90 days of filing bankruptcy will not be discharged. For cash advances, the limits are $750 obtained within 70 days of filing.
Property taxes generally are not discharged by bankruptcy, but some federal taxes can be as long as they meet specific conditions. Federal income tax debt may be discharged if it is more than three years old, was filed more than two years before the filing and the debtor didn't file a fraudulent tax return or try to avoid paying taxes.
Any debts or fines owed as a result of delinquent or illegal behavior will also not be cleared away through bankruptcy. These include unpaid fines for personal injury or death caused if the debtor was charged with driving under the influence and traffic tickets, as well as court-ordered criminal restitution or any debts that arose from fraud.
More Help on What Debts Are Not Discharged By Filing Bankruptcy?
- Debts addressed in the Chapter 13 Repayment Plan - The Chapter 13 Repayment Plan includes debts such as priority, secured and unsecured debts. Learn more about the types of debt that must be paid. - read more
- Exemptions - Bankruptcy exemptions are a list of all the assets, personal items and goods that can not be liquidated in Chapter 7 Bankruptcy or sold in Chapter 13 Bankruptcy to repay creditors. - read more
- How Likely Are Creditors to Object to Discharge? - As the most common and simple form of personal bankruptcy, a Chapter 7 petition is not as likely to draw challenges from creditors as in more complicated, business bankruptcy proceedings. - read more
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