Having too much debt is an impetus for seeking debt forgiveness through chapter 7 bankruptcy. But, can this "fresh start" decimate all of your consumer debt? Depending on your financial situation, this get out of debt solution can keep you out in the cold. You may be better off exploring other options.
Technically, speaking chapter 7 bankruptcy legally prohibits most creditors from attempting to collect what you owe. But, the keyword is "most." There is no guarantee it will rid you of all financial obligations. Debts that you may not be able to discharge include:
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· Debts for most taxes and debts incurred to pay non discharged taxes
If you have federal and states income taxes, capital gains taxes, property taxes, and payroll taxes, or even if you incurred new debts to pay off non discharged taxes, all of these debts are generally not discharged.
· Debts for domestic support obligations
Beware if you're a dead-beat dad. Under the bankruptcy law, there is no debt forgiveness for domestic support obligations. This means you won't be off the hook on child support or alimony or debts that are in the nature of child support, maintenance, or alimony, which are established by a court order or authorized by law.
· Student loans
Even if you owe too much on student loans or educational loans, chapter 7 may not get you out of debt. The only way to have a student loan discharged is if you apply for a hardship discharge before a discharge of your other debts is granted, and if the bankruptcy court finds that paying off the student loan would create an "undue hardship" for you and/or your family. Generally, to demonstrate an undue hardship, you must show your inability to make the student loan payments at the time the bankruptcy is filed and in the future.
· Debts for which you gave up your discharge protections by signing a reaffirmation agreement
The United States Bankruptcy Code states that in order for you to retain possession of a secured consumer debt that should be discharged, such as your home, car, or other asset, you have to reach a voluntary reaffirmation agreement with the secured creditor. Caution: The reaffirmation agreement will require you to continue repaying such debts. And if you don't, the creditor can impose a valid lien, such as a mortgage or security interest, against your property.
· Debts incurred under a DUI (Driving Under Intoxication)
If you are responsible for any debts for personal injuries or death from driving while under the influence of drugs or alcohol, chapter 7 won't offer you any debt forgiveness. And this includes your operation of a motor vehicle, vessel, or aircraft while intoxicated.
Additionally, chapter 7 won't get you out of debt on any of the following:
· Debts that you owe to a pension, profit sharing, stock bonus, or other retirement plan, or to a Thrift savings Plan for federal employees.
· Debts that you owe for most fines, penalties, forfeitures, or criminal restitution obligations.
· A consumer debt that you did not properly list in the chapter 7 filing
· Debts that the bankruptcy court specifically decided or will decide in your bankruptcy case as non discharged.
The United States Bankruptcy Code also lists other non-exempt property that you may be obligated to forfeit pursuant to a chapter 7 filing. If you owe too much on non exempt property, sorry Charlie! This property can include luxury items, a second car, truck, or home, a vacation home, high value musical instruments, collections of stamps and coins, family heirlooms, cash, savings in bank accounts, stocks, bonds, and other investments.
The above is a partial list of debts normally excluded. However, you should consult with an attorney to determine how the bankruptcy law applies to your specific situation.
In summary, you may not be able to wipe out all of your consumer debt through bankruptcy. So, if you owe too much debt, carefully compare all of your bankruptcy options, including debt consolidation, credit counseling, and debt settlement. Weighing the risks, always look for another way to get out of debt without bankruptcy.
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