Bankruptcy is a legal process that allows someone unable to repay their debts to eliminate or discharge those debts. While there are many parts of bankruptcy that are beneficial, such as the automatic stay that stops collection activity, for most people, the discharge of their unsecured debts will be the biggest benefit of bankruptcy proceedings.
The company or person you owe that money to can no longer come after you for the money nor can they report the account to the credit bureaus. A discharge gives you a clean slate and an opportunity to make better financial decisions in the future.
However, it’s important to realize that not all of your debts are eligible for discharge during bankruptcy proceedings.
You probably can’t discharge your more recent tax debts
If the federal or state government has garnished your wages, levied your bank accounts or security lien against your home, you may feel the pressure of that debt on a daily basis. Older income taxes may be dischargeable but income taxes less than 3 years old are typically not eligible for discharge during bankruptcy.
You can’t discharge obligations from divorce or having children
If you have a court order to share property with your former spouse, pay your ex spousal support or pay child support, those obligations can drastically impact your monthly budget. Bankruptcy does not stop your obligation to make court-ordered support payments, nor will bankruptcy result in the discharge of past-due support amounts.
Bankruptcy discharges don’t impact personal injury payments if the debtor was driving a vehicle while intoxicated
If you recently lost a personal injury or wrongful death lawsuit and were driving while intoxicated, another party may have a claim to a portion of your wages or thousands of dollars of your assets. In most scenarios, the bankruptcy courts will not discharge debts owed because you caused bodily injury or death to someone else if you were driving while intoxicated.
It is possible to discharge some lawsuit-related debts as long as the debtor was not intoxicated or did not intentionally cause harm. There are other debts that people may struggle to discharge, including student loans. Student loans may sometimes be eligible for discharge if a significant hardship can be demonstrated although courts are reluctant to find such a hardship exists.
If you have unusual debts and wonder if bankruptcy will discharge them, discussing your circumstances with an attorney can help you better determine what benefits bankruptcy may offer you.
