What Bankruptcy Can’t Help You With
Bankruptcy is an official, legal declaration of a debtor’s inability to pay off large amounts of debt. When you declare bankruptcy, the bankruptcy court will clear view of all responsibility for the debts which are illegally dischargeable. There are two kinds of bankruptcy available to debtors in the United States - Chapter 7 and Chapter 13 bankruptcy.
Chapter 7, or liquidation bankruptcy, is the most common type of bankruptcy filed in the United States. In contrast to chapter 13 bankruptcy, chapter 7 bankruptcy offers immediate relief; after a successful chapter 7 filing, all dischargeable debts are wiped out.
Chapter 13, or reorganization bankruptcy, on the other hand, creates a payment plan which allows one to repay debts over a period of time (usually five years) under more reasonable terms. In order to file for chapter 13 bankruptcy, one must have a regular source of income with which to repay said debts. An advantage of this form of bankruptcy is that the debtor is allowed to keep assets which may be liquidated under chapter 7 bankruptcy.
Unfortunately, there are some debts which are only dischargeable under chapter 13 bankruptcy, and certain debts which are not dischargeable at all. Other debts are dischargeable only under chapter 13 bankruptcy, including: - Marital debts incurred in a divorce or settlement agreement - Debts incurred to pay a non-dischargeable tax debt - Court fees - Condominium, cooperative, and homeowner’s association fees - Debts from retirement plan loans - Debts that could not be discharged in a previous bankruptcy
Generally, debts which are not dischargeable by any means include: - Those which were incurred through fraudulent actions - Student loans (unless the debtor can prove that repaying the loan would cause “undue hardship”) - Domestic support obligations, such as child support payments, alimony, etc. - Criminal penalties - Intoxicated driving debts - Debts arising from willful or malicious acts
Income tax debts can be discharged; however, certain circumstances must be met. For such debts to be discharged, the debtor must have filed a tax return for the tax year in question; the debt must arise from a tax return filed at least two years before the filing; the debt must arise from a tax return that was due at least three years before the filing; and the taxing authority must not have assessed the debtor’s liability for the taxes within the last 240 days.
Bankruptcy filings require that the debtor report all creditors and their addresses; debts which are not listed cannot be discharged. If the creditor has moved without providing a forwarding address, or the notice is lost in the mail or notice cannot be sent for any reason out of the debtor’s control, the debt will be wiped away as long as it is legally dischargeable. However, debts which cannot be assessed for reasons which are under the debtor’s control (e.g. the debt is not listed or the address given is incorrect) may not be discharged.
Life after bankruptcy is often as easy or as difficult as the debtor makes it. Though certain liens may still remain, a debtor can prevent creditors from taking his or her bank account or wages. Unfortunately, a bankruptcy filing in one’s credit report can make it harder for one to be granted credit and certain assets may be liquidated under a chapter 7 filing.
While filing for bankruptcy can relieve you of the burden of debt, a prospective filer must do their due diligence to know which debts cannot be discharged, and to make sure that all dischargeable debts are, in fact, discharged. Sometimes a person has no choice but to file for bankruptcy because of medical bills or other forces beyond their control; just remember that you control what you do with your life after bankruptcy.