What Types of Debt will Bankruptcy Not Erase?
Bankruptcy is a powerful tool that can be used to wipe away your debts and get a fresh start. While bankruptcy can be a good choice, it does have limitations. One limitation to bankruptcy is that certain types of debts are not discharged, or wiped away. These non-dischargeable debts include back taxes, student loans, alimony, child support, court ordered restitution, and illegally accrued debt. It is essential to speak with an attorney prior to declaring bankruptcy to ensure that your debts are not of these specific types.
Taxes greater than three years old are generally dischargeable. However, local, state, or federal taxes owed that are less than three years old are not dischargeable. This immunity even extends to money borrowed in order to pay off delinquent taxes.
Student loans are an increasingly common debt. Soaring college tuition coupled with a slow economy has resulted in recent graduates struggling to make payments. Some have considered bankruptcy. Unfortunately, bankruptcy can almost never wipe away student loans. While a court has the discretion to discharge student loans in situations of extreme hardship due to injury and impairment such a discharge is rare. If most of your debt is in student loans, bankruptcy may not be a good option for you.
Alimony and child support are also not erased by bankruptcy for public policy reasons. All payments for alimony and child support must be made on time and paid in full. If payments are delinquent, bankruptcy will not wipe away alimony or child support debts.
Court ordered restitution is also a non-dischargeable debt under bankruptcy law. Any fine or penalty that you have been ordered to pay must still be paid in full. Bankruptcy will not erase this type of debt.
Finally, illegally accrued debts also must still be paid back in full. Libel, slander, and fraud can all be grounds for declaring debt to have been illegally accrued. If the debt is declared illegally accrued bankruptcy will not wipe it clean.
The above is but a brief and incomplete review of the limitations of bankruptcy. Therefore, before deciding on bankruptcy as a path forward, it is essential that you talk with an attorney who can guide you as to the limitations of bankruptcy as applied to your situation.
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I invite you contact us today. We have helped thousands of clients navigate the process of filing bankruptcy in New Jersey and Pennsylvania. Don’t set out on the process of selecting which Chapter is right for you and filing your paperwork alone. We will sit down with you and clearly explain the process and what you can expect. To set up your free consultation, give us a call at 1 (800) 891-2657.