Filing for bankruptcy discharges your accumulated debts, offering you a fresh financial start. However, it is crucial to have realistic expectations about which debts can be discharged. Some obligations do not qualify for elimination, and understanding these exceptions is the key to successfully planning your financial recovery.
Family obligations
Debts related to family support, such as child support and alimony, survive a Chapter 7 or Chapter 13 filing completely. The courts prioritize the financial security of your children and your former spouse. As such, you remain fully responsible for these payments and must continue the obligation during and after bankruptcy.
Tax debts
Recent income tax debts do not qualify for discharge. However, older taxes can be eligible, provided they satisfy this criterion:
- The tax return has a due date of at least three years before the bankruptcy filing date.
- The Internal Revenue Service (IRS) assessed the tax at least 240 days before you file for bankruptcy.
Additionally, any taxes involved in wrongdoing, such as fraud and embezzlement, do not count.
Student loans
In Pennsylvania, a student has an average student loan debt of $37,000. Some struggle to settle this amount to the point that it becomes a severely delinquent debt. Unfortunately, student loans are the most difficult to discharge under bankruptcy.
If you can prove undue hardship, you may be eligible to discharge your federal or private student loans. Using the Brunner Test, you must demonstrate that you meet these factors:
- You cannot maintain a minimal standard of living.
- Your current financial state can likely last for a lengthy period.
- You made good faith efforts to pay your loans.
Should you take this opportunity, you must file an adversary proceeding and gather extensive evidence.
Taking the step toward financial recovery
The purpose of bankruptcy is to help the honest debtor. Getting clarity on which debts will remain is the first step in building a successful plan. An experienced bankruptcy attorney can assess your financial situation and guide you through the complexities of federal law.
