Be Careful – Not Everything Is Discharged In Bankruptcy!

So you’ve finally decided to declare bankruptcy. Don’t worry, we’re not judging you on the decision. On the contrary, we’re encouraging you to step forward and make the best decision that’s going to take care of your family. Far too often people hem and haw and procrastinate about such an important decision as bankruptcy, only to find that they really could use the help that bankruptcy provides.

Simply put, bankruptcy helps you get a clean start. Does that mean that it’s for everyone? Absolutely not. For example, before you jump into the bankruptcy waters and change your credit profile for 7 to 10 years, you have to realize that not everything is discharged in bankruptcy. This means that if you are thinking about declaring bankruptcy, you have to be aware that there might really be some debts that you cannot add to the bankruptcy.

What are those debts? Well, they actually vary based on what chapter of the bankruptcy code that you’re filing under. You might be filing under chapter 7, which means that the following debts below are not dischargeable through bankruptcy.

The first is any type of accident claim involving intoxication. Sorry, but you’re not going to be able to get that debt erased at all. You’ll need to pay it. Trust fund taxes, recent taxes, and student loans are not dischargeable through chapter 7 bankruptcy either. So if you went to college and took out a lot of expensive college loans, we’re afraid that you’re just going to have to work out alternative payment options for those. If your college loans are far behind in default status, you can indeed work out a repayment schedule that can get you back current. It’s just a matter of really wanting to do that.

Also, if you have any government obligation that isn’t tax-related, you’re still on the hook for those. Criminal fines are the same way, as are child and/or family support. So if you unfortunately have a lot of back child support, you’re going to have to slowly work your way through the payments.

What does that leave for Chapter 7 bankruptcy? Actually, quite a bit. Personal loans, credit cards, repossession deficiencies, medical bills, judgments, leases, guaranties, income taxes that are more than just a few years old, business debts, negligence claims, and auto accident claims. If there any debts that are incurred by fraud or dishonesty, you would not be able to discharge through Chapter 7 bankruptcy either.

Keep in mind that your creditors can still object to your bankruptcy, which means that they’ll have to go to court with you and you’ll need to defend your bankruptcy case. If this happens, then it’s a good idea to get a bankruptcy lawyer on your side. Of course, navigating bankruptcy alone isn’t recommended anyway — you’re a lot better off making sure that you go and get a lawyer right at the start of your bankruptcy. That way you don’t have to rely on just general information in order to get your bankruptcy filling off to a smooth start.

Now, we’ve only covered Chapter 7 — the bankruptcy chapter that allows most of your debts to be discharged and wiped clean away. Not everyone qualifies to file under this chapter — Chapter 13 is the other bankruptcy chapter that others may find bankruptcy relief under.

Chapter 13 is more or less a structured repayment plan — as long as you don’t miss any of your payments, your debts are wiped clean. This is something that the creditors cannot come back and sue you for — you have a right to declare bankruptcy.

What isn’t covered in a Chapter 13? Plenty. Let’s cover the high points, shall we?

Much of what cannot be discharged under Chapter 7 cannot be discharged under Chapter 13, either. Tax debts less than three years old, government fines, child support payments, debts incurred due to fraud are still non-dischargeable debts. You’ll have to make other arrangements for them.

Now, you might think that Chapter 13 would be useless, but that’s not the case at all. All forms of bankruptcy stop creditor collection activity — they cannot foreclose, they cannot garnish your wages, and they cannot repossess anything you own. The standard repayment plan ranges from three to five years, which means that after that time, your debts are behind you — for good. They can’t rise up from the debt and hurt you again, and that’s the type of peace of mind that everyone deserves.

There is actually a lot of ground that bankruptcy does cover, but knowing what it doesn’t cover can help you make better decisions. For example, you might realize that your student loans aren’t covered, so you can pursue an alternative repayment plan with the company that owns that loan. It’s the right thing to do and if you have an active repayment plan, it can improve your credit score as well — why not look into all of your options today?