Filing for bankruptcy is a strategic move if you need a financial reset. While Chapter 7 or Chapter 13 can wipe out debts, they have certain limits. Certain obligations are legally non-dischargeable, and understanding what these are is the first step in building a realistic plan for your fresh start.
Family Support Obligations
Domestic support obligations, such as child support and alimony, are non-dischargeable. Whether you owe back payments or ongoing support, these debts persist.
While you cannot wipe out domestic support obligations, a Chapter 13 filing allows you to pay back child support over a three-to-five-year period. This can stop aggressive collection efforts while you catch up.
Debts Born from Wrongdoing
Bankruptcy aims to protect honest but unfortunate debtors, which is why it cannot discharge debts related to fraud, embezzlement or willful and malicious injury. This specifically applies to debts arising from death or personal injury caused by driving under the influence. Debts for property damage caused during the same incident may still be dischargeable, depending on the chapter you file.
Student Loans
The government exempts federal and private student loans from debt discharge. Lawmakers have created a legal system that protects government funding from abuse. This prevents students from taking an education and then immediately erasing the bill after graduation. However, you may have an option to seek a discharge, provided that you prove they are putting you in undue hardship.
Government Fines and Taxes
You must settle fines due to traffic violations or criminal restitution because these do not go away after filing for bankruptcy. While criminal restitution and most fines stay with you in a Chapter 7 case, certain government-imposed fines and penalties may be dischargeable upon the successful completion of a Chapter 13 repayment plan.
Additionally, most recent income taxes are non-dischargeable. While these require payment, you may discharge older tax debts if they meet specific timing requirements, generally including being at least three years old and filed at least two years prior to your bankruptcy.
Unlisted Debts
If you forget to list a creditor on your bankruptcy petition, you likely still owe them. You cannot wipe out a debt that the creditor did not even know was being challenged.
Planning your Next Strategy
Knowing which debts will stay and which will go offers you the chance to rethink your moves. Will a Chapter 7 liquidation fit your situation, or would a Chapter 13 repayment plan work best? Before you take action, it would be best to seek advice from a bankruptcy attorney to learn more about your options.
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