Bankruptcy exists to provide individuals with a fresh start. The most common types of bankruptcy are Chapter 7, where a trustee sells and liquidates property to pay off debts, and Chapter 13, where the court mandates a repayment plan spanning three to five years.
The question is, does filing for bankruptcy automatically forgive debts that you have incurred? The answer depends on the debt that you are dealing with.
While both Chapter 7 and Chapter 13 bankruptcy covers debts such as medical expenses and credit card bills, there are a few ones that any of the two cannot simply discharge. They are more essential financial obligations that require maximum repayment over a span of time, such as:
Though you must pay your mortgage, you can often still keep your home, even in bankruptcy. Consider that you should not have more equity than permitted under state and federal bankruptcy laws.
Tax Debts Or Government Fees
Taxes are not dischargeable, but there may be an exception for those over three years old, depending on the dates of filings and extensions given.
Child Support Or Alimony
Child support is a priority debt and is non-dischargeable. Fortunately, freeing yourself of other debts can help you focus on providing child support or alimony.
If you filed for Chapter 7 bankruptcy, you must list all your debts. Trustees will not consider discharging unlisted debts, and not declaring them may lead to potential fraud charges.
Fines And Restitution
Any criminal fines and restitutions you have accumulated are non-dischargeable and will require you to cover them, even in bankruptcy.
Exceptions On Non-Dischargeable Debts
There may be hope for individuals who have trouble paying off some mentioned. Some debts may be discharged if the creditor fails to file a lawsuit against you and the bankruptcy court determines it is dischargeable.
These debts may include fraud, embezzlement, and debts arising from marital settlement agreements, among others, such as:
- Purchases of luxury goods.
- Cash advances.
- Debts by fraud or misrepresentation.
- Debts that are due to wilful and malicious injury.
The creditor will often raise this issue if they find that the debts meet the descriptions above.
If you petition for bankruptcy and the creditor does not file a lawsuit to determine the debt as non-dischargeable, the court may discharge them. There are also cases where the creditor raises the issue, but the court disagrees, leading to a discharge in debts that are normally non-dischargeable.
In themselves, the exceptions seem complex on paper and will require some legal assistance to see if your debts are dischargeable. In any case, be sure to seek legal counsel on the matter. A bankruptcy attorney can help you weigh your options and ensure you can properly manage your debts.
Need Help With Bankruptcy Filing?
Bankruptcy does not automatically forgive you of the debts that you have incurred throughout the years. It can ease some of the financial burdens that are mounting on you to help you live better and start anew financially.
Fortunately, you can always ask for assistance whenever you are looking to file for bankruptcy as an option. For help with the bankruptcy filing, contact Lincoln-Goldfinch Law and talk to an experienced bankruptcy attorney. They can help you understand your situation and offer you options that can give the best possible outcome.
Summary: Does Bankruptcy Automatically Forgive Debts?
There are non-dischargeable debts that bankruptcy cannot cover. Bankruptcy does not forgive some mortgages, child support, and certain taxes you owe. Exemptions may apply, however, when the creditor fails to file a lawsuit or when the court deems it fit.