If you’re drowning in debt, declaring bankruptcy may be your only option. While bankruptcy can discharge many forms of debt, it’s crucial to note that not all debts qualify. Some debts are difficult, but not impossible to discharge in bankruptcy.
What does it mean to declare bankruptcy?
Individuals have two options when it comes to filing for bankruptcy: Chapter 7 or Chapter 13. Both types of bankruptcy aim to assist you in reorganizing your finances but in very different ways.
What is Chapter 7 bankruptcy?
The majority of your debt is wiped under Chapter 7 bankruptcy, but you must also give up personal property. Essential or personal property is exempt, while all nonexempt property must be sold. The money is subsequently divided up among your creditors.
What is Chapter 13 bankruptcy?
With Chapter 13 bankruptcy, you rearrange your current debt. You analyze your creditors and debt with the help of a court-appointed trustee and devise a payment plan. You pay the court a certain monthly sum, and the court distributes the funds among your creditors over three to five years. Your remaining debts will be canceled at the end of this time.
It is also possible to apply for Chapter 13 bankruptcy after having already filed for Chapter 7.
What does discharging debt do?
After you have been dismissed, the creditor cannot force you to pay your debts anymore. In Chapter 7, you can get rid of a lot of debt. Your debt is restructured under Chapter 13 bankruptcy, and any debt that remains after the repayment term is dismissed.
What debts cannot be eliminated in bankruptcy?
Certain forms of debt cannot be discharged through bankruptcy:
Secured debt: When you take out a loan to buy a car or other thing, you promise to pay the lender back in exchange for the present use of the item. If you subsequently file for bankruptcy, you’ll have to choose between giving up the item and continuing to pay the loan.
Restitution: Restitution ordered by a court in cases of bankruptcy is not dischargeable. For causing financial loss or personal damage to another person, you must pay restitution, which is a court-ordered sum of money. This includes compensation for any injuries you cause as a result of driving while inebriated.
In bankruptcy, which debts are hard to eliminate?
With certain other sorts of debt, bankruptcy may be able to provide a fresh start.
Student loans: In the great majority of circumstances, student debt will not be forgiven. All sorts of school loans, including federal student loans, private lender student loans, and loans straight from a university, qualify as student loans and are normally excluded from bankruptcy.
However, there are certain exceptions. One is if you can demonstrate that you will never be able to work again due to a total and permanent handicap. Another exception is undue difficulty, which means that it must be demonstrated that you have worked well to reimburse your loan, that it will not allow you and your employees to live to a minimum level and that the circumstances where payments are difficult will be changed during the repayment period. It is not possible to do this.
However, the requirements for both choices are quite high, and neither exemption is frequently granted.
Income tax liabilities: A bankruptcy filing can wipe off some income tax obligations, but only if you pass a stringent and lengthy test.
The Bottom Line
Bankruptcy has a significant negative impact on your credit score, so consult macco law group to enable you to make a decision. However, it may still be time to file for bankruptcy if you are unable to pay your creditors.
