Debts That Remain after a Bankruptcy

January 31, 2013

Debts that remain after a bankruptcy

If you have had to file bankruptcy recently due to the sluggish economy, you're not alone. Bankruptcy has many benefits, but the main reason to file is to receive a discharge of your debts. Normally, once you receive a discharge, you are under no further legal obligation to pay the debt. Although the bankruptcy discharge is a powerful tool against many types of debt, such a medical bills and credit card debt, there are certain types of debt that cannot be discharged in a bankruptcy.

Nondischargeable debts

To a certain extent, whether or not the debt is dischargeable generally depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. The following debts are nondischargeable regardless of the type of bankruptcy filed:
-Debts that you fail to list on your bankruptcy schedules
-Alimony, child support and other domestic support obligations
-Recent federal, state and local taxes
-Tax liens
-Judgments in wrongful death of personal injury lawsuits that were incurred because you operated a motor vehicle, aircraft or vessel while intoxicated
-Debts obtained through fraud, false representation or false pretenses, including embezzlement and larceny
-Condominium or cooperative housing fees
-Governmental fines and penalties
-Most student loans (discussed later)

A Chapter 13 bankruptcy can discharge a slightly higher number of debts. The following are debts that are not dischargeable in a Chapter 7 proceeding, but are in a Chapter 13:
-Debts for willful and malicious injury to property
-Debts incurred to pay non-dischargeable tax obligations
-Debts as a result of property settlements in divorce or legal separation proceedings

It is important to note, however, that a discharge of the debts in a Chapter 13 bankruptcy are granted only after you have completed making all payments under a repayment plan. Therefore, you generally pay some of each debt, at least partially.

Student loans

Federal student loans are always nondischargeable in bankruptcy. However, technically, private student loans are dischargeable in bankruptcy. However, to do so, the debtor must prove "undue hardship"--a very tough standard. Although there is no definition for "undue hardship", most courts require the debtor to prove the following:
-The borrower cannot maintain a minimal standard of living for himself, herself or dependents.
-The borrower's dire financial situation is likely to continue for a significant portion of the loan's repayment period.
-The borrow has tried, in good faith, to repay the loan before filing bankruptcy.

Since the debtor essentially has to prove that he or she will never be able to pay the loan, the undue hardship standard is very difficult to meet, as it requires proving that a future event is certain to happen.

Consult an attorney

Although many types of debt are nondischargeable under bankruptcy, you should not let it discourage you from considering it. Many people, once free from the burden of paying other dischargeable debt, find that they are able to more easily pay their nondischargeable debt.

However, bankruptcy is not for everyone. If you are considering filing bankruptcy, contact an experienced bankruptcy attorney. In addition to determining whether bankruptcy is right for you, an attorney can advise you of your debt-relief options and recommend one that fits your personal situation.

Article provided by Law Offices of Brian A. Barboza
Visit us at http://www.barbozalaw.com