For some people, filing for bankruptcy really is the only or best option. While filing does help eliminate or discharge certain debts, it’s important to understand that the process doesn’t always give you a clean slate. A number of debts, such as credit card debt, are discharged after the process is over, meaning you are no longer responsible for them. But, several debts simply can’t be discharged and you’ll remain responsible for them. Additionally, some debts can be discharged, but you might keep paying them if you plan on continuing to use the item they are attached to.
In the majority of cases, student loans tend to linger after a person goes through bankruptcy proceedings. Student loans are usually not dischargeable, although there is one exception to the rule. If your loans are so much that they are causing you “undue hardship,” the court may discharge them. There are three criteria you need to meet to qualify for undue hardship. Paying the loan would keep you from maintaining a minimal standard of living, your hardship will continue for a significant amount of the repayment period, and you made a good-faith effort to pay the loan before you filed. Unless you can prove to the court that you meet those three factors, the loans will remain in your name after your discharge.
Mortgage and Auto Loans
While mortgages and car loans are dischargeable when you file for bankruptcy, you might wish to keep those loans if you hope to keep your home or car. Depending on the exemption laws in your state, if you file Chapter 7 bankruptcy, your trustee might try to sell your home or car to pay off your creditors. If you file Chapter 13 and are current on your mortgage, the filing won’t have an impact on your home loan. Although your mortgage or car loan will technically be discharged after a Chapter 7 bankruptcy is over, the lender still has an interest in the property and can repossess it or foreclose on it if you don’t keep up with your payments.
Child Support and Alimony
You can’t file in an attempt to avoid paying any child support or alimony you owe. Both types of debt are nondischargeable and considered priority debt – meaning that you need to continue to make payments on them. If you file for Chapter 7 bankruptcy and the trustee is able to sell off some of your assets, the money from those assets would go to child support or alimony payments first before going towards paying off other debts. The debts are also exempt from the automatic stay, so the creditor can come after you or file a lawsuit during the proceedings to get you to pay the child or spousal support.
A few other debts can’t be discharged when you file, including certain types of tax debt, some types of personal injury debts, and certain types of legal fees. In some cases, a creditor can object to the discharge and you can remain responsible for the debt. For example, if you used a credit card to purchase a luxury item costing more than $650 within 90 days of filing, the debt might not be dischargeable.
Pre-filing counseling is required before you file for bankruptcy. The counseling session can give you a better understanding of what debts you’ll remain responsible for and which ones will be cleared out after you file. It can also help you see if filing is the right option for you.
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