Debts that are not Erased in Bankruptcy

With the economy of the Unites States in a bit of a recession, many Americans have found themselves in a position where their income isn’t enough to cover their monthly bills and obligations. When this happens, bankruptcy is an option that may help eliminate some debt and get a person’s finances back within reason. 

Bankruptcy will not, however, erase all kinds of debts. Before considering the bankruptcy option, you should be aware of what will not go away and how these kinds of debt affect your situation and your decision to file.  The most common type of bankruptcy is Chapter 13, so we will specifically deal with debts that are excluded for this type of filing.

First and foremost in the debts that will not go away are those involving government agencies. Uncle Sam will not write all your debts off like a credit card company will so don’t expect them too. The most common types of debts in this category are student or education loans, court mandated alimony or child support payments, and criminal or traffic fines and fees. While bankruptcy may help you to consolidate and make payments toward these debts, you will be paying these things back eventually.

The second category of debts that bankruptcy will not erase is long term debts that extend beyond the bankruptcy plan terms. Typically, these are mortgage debts but may also include major equipment purchases, loans for land, or business loans. Bankruptcy plans can be as long as 5-7 years but debts that have 15 or more year terms are usually excluded.

The third thing to mention is that if you are planning to file for bankruptcy, do not plan to accumulate debt right before filing. Debts for luxury items and large cash advances (in excess of $750) which are obtained within 70-90 days of filing will not be erased. These debts will have to be paid back completely.

The final types of debts to consider are those obtained that have an illegal or fraudulent aspect to them. Taxes, with returns not filed at all or filed fraudulently will not be erased. Debts for money that was obtained through embezzlement or under false pretenses will also have to be paid back.

Although bankruptcy may be a solution for some individuals, it is important to evaluate your unique situation in regards to the types of debts that you owe.  For more information and for counsel prior to making the decision to file, contact a bankruptcy lawyer who will be able to better advise you in your individual situation.