What types of debt might not disappear in bankruptcy?

On behalf of Bill Maddox

Many people think that all debts get wiped out in a Chapter 7 bankruptcy. However, obligations such as student loans and IRS debts tend to stay.

Bankruptcy is a way for Tennessee residents having trouble with debt to get their finances under control. For example, a Chapter 13 bankruptcy might even enable homeowners to keep their houses and other assets, and these people usually have to pay back only a fraction of their debt. A Chapter 7 bankruptcy tends to be quicker and often wipes out more debt. However, it does not wipe out all  types of debt. Here is a look at some of the debts that might remain.

Child support

If someone is paying child support or is behind on it, it is most likely ineligible to be wiped out. The same principle applies to alimony/palimony.

Student loans

It is best to not count on a student loan to be discharged in a bankruptcy. That said, it is not impossible. For instance, a person may be able to prove undue hardship or that the school engaged in dishonest practices. In fact, many people who file for Chapter 7 bankruptcy do not even bother to try to get their student loans discharged, and that could end up being a mistake.

Secured loans

Some loans, such as credit card loans, are unsecured. That means a person does not have to put up an asset such as a car or piece of jewelry, called collateral, to get the loan. On the other hand, some loans are secured. And these, unfortunately, are likely ineligible for bankruptcy discharge. The lender may end up taking control of the collateral unless the person filing bankruptcy can find a way to continue paying the debt.

IRS obligations and other tax obligations

The older a person’s tax debt is, the more likely it is to get discharged in bankruptcy. In general, though, debts of three years or less will probably stick through Chapter 7 proceedings. Otherwise, bankruptcy filers have to meet a rigid set of guidelines.

Debts related to an ex

Many divorce decrees contain agreements for one spouse to keep paying the other’s debt, or the agreements say one spouse pays the other’s legal bills. These types of debt have a high chance of surviving Chapter 7 proceedings.

Despite all of the above, many kinds of debt do get completely wiped out in Tennessee Chapter 7 bankruptcies. They often include medical debt and credit card debt. A bankruptcy attorney can advise people considering this route whether Chapter 7 or Chapter 13 is better for their particular situation. It may be that if the huge bulk of someone’s debt is in the form of reputable student loans, IRS obligations and child support, Chapter 13 could be a better option.