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Understand the Debts a Bankruptcy Can't Remove

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Bankruptcy can wipe the slate clean for many people drowning in debt. However, some debts can linger even after declaring bankruptcy. You should know what happens with these debts before filing for bankruptcy. Consider these kinds of debts to have an idea of what your financial situation will look like during and after your bankruptcy case.
Chapters 7 and 13 of the US Bankruptcy Code collectively list many types of debt bankruptcy cannot discharge. Here are some of the more common types people have concerns over.

Child Support and Alimony
Bankruptcy will not discharge payments you owe in child support or alimony maintenance. This category also includes any debts owed to a spouse or child as a result of divorce. In addition, you will still owe any attorney fees associated with establishing those payment amounts.
Domestic support obligations will continue to accrue. Attempts to collect support will continue after your bankruptcy. If filing Chapter 13, these types of debts will also become a part of your overall repayment plan.

Certain Taxes
Tax debts aren't automatically discharged in a bankruptcy. The court can discharge some tax debts if you meet specific criteria. Generally, the tax debt:
  • Must be over three years old
  • Cannot represent a trust fund tax
  • Is not already part of a payment plan with the IRS
  • Cannot come from making a fraudulent return or other evasion activity
You must also file a valid tax return to have income taxes considered for possible discharge. You may have to specifically request a special exemption from the court to have income taxes discharged.
Fines and Penalties
If you owe local, state, or federal entities, those debts will remain. Generally, this category includes the types of fines you accrue from violating laws and statutes. This includes debts stemming from criminal or malicious activity.
Unlisted Debts
When you file for bankruptcy, you must list your secured and unsecured debts. To do this, you will fill out the appropriate schedules:
  • Schedule D.  List secured debts, such as mortgages and any creditor that can take your property because of the debt.
  • Schedule E/F. List unsecured debts, such as credit cards, bills, and taxes.
If a debt isn't listed, the court can't discharge it. As with everything else, you'll find caveats to this as well. For example, depending on your type of bankruptcy, you can file a motion to have the debt added and discharged while your case is pending or, in some situations, after your case ends.
Student Loan Debts
Student loan debt often shows up as something you cannot discharge. The truth is bankruptcy can wipe out a student loan, but only if you meet the stringent requirements of the undue hardship exception. Those requirements include:
  • Proving that repaying the loan will cause you to not maintain a minimal standard of living
  • Proving that repaying the loan will cause your hardship to last the whole time you're repaying it
  • Proving you made an effort to repay the loan before you filed bankruptcy
Proving these things isn't easy. Even if you do prove them, the court will still have final say on whether it will discharge your student loan debt or not. For most, that discharge doesn't happen. Nevertheless, student loan debt discharge is worth discussing with an attorney.
Creditors of non-discharged debts still have to wait until after your bankruptcy before resuming collection efforts. That delay can put you in a better position to deal with them later.
The methods for dealing with different types of debts can vary based on numerous factors. Speak to an attorney about what you can do to get the most out of your bankruptcy. Consult the bankruptcy attorneys at Affiliated Legal Services, Inc., today to learn more.

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