Most Common Debts Not Erased by Bankruptcy
Oftentimes, people assume that filing for bankruptcy is an easy way out: Chapter 7 or Chapter 13 will certainly erase all of your debt, right? Well, not exactly.
While unsecured debt, such as medical bills and credit cards, can be written off for those who qualify, there are several debts that can’t.
The following are debts that no amount of bankruptcy will erase:
Alimony and Child Support: You can run, but you can’t hide from alimony or child support payments, not even if you declare bankruptcy. Legally, all chapters of bankruptcy state that you must pay any and all court ordered payments to children and ex-spouses. These also must be paid on time, and in full.
New bankruptcy laws have expanded this clause by stating that any debt owed to a child or a spouse (not including support or alimony) is not immune to bankruptcy. If you promised to pay your wife $40,000 for her share of your home equity, for example, you will still have to pay her back.
Student Loans: Once upon a time, student loans could be wiped out by bankruptcy. But, students figured this out and used it to their advantage. Thus, the law changed. Now, student loans are immune to bankruptcy unless you can prove (and not many people can) that paying back your loan has financially devastated you and your family. In order to provide proof of this hardship you typically have to be physically unable to work and unable to provide minimally for your family.
Restitution that is Court Ordered: Just as court ordered payments to children and ex-spouses is untouchable by bankruptcy, so is court ordered restitution. If you are convicted of vandalism, for instance, and ordered to pay $5,000 in fines, you will still owe that five grand, even if bankruptcy is filed.
You must also pay any restitution ordered as a result of drinking and driving or drugging and driving. For example, if you injure a pedestrian with your car while intoxicated and are ordered to pay the victim $100,000, this money will still be owed. No amount of bankruptcy will help.
Taxes: If you are overdue on your taxes from a decade ago, you may be able to wipe the slate clean with bankruptcy. But, if your taxes are overdue (or due) by three years or less, they are immune to bankruptcy. This includes federal, state, and local taxes and often also includes business related taxes and property taxes. Also immune to bankruptcy is any loan you took out to help you pay off overdue taxes. Thus, in a nutshell, almost all taxes are typically immune to bankruptcy unless they are from several years back.
Debt Accrued Illegally: Any debt you may have accrued illegally, such as through fraud, embezzlement, or an insurance scam, will remain just that: debt. If it is determined by a court that your debt was incurred because of an illegal act, libel, or slander, that debt cannot be erased through bankruptcy.
Bankruptcy is not an easy process. Like all legal processes, it’s time consuming, grueling, and complicated. It costs money, time and months of frustration. In the end, it doesn’t even wipe out all your debt. For this reason, it’s often a good idea to visit bankruptcy only as a last resort.